NISM-Series V-A: Mutual Fund Certification Exam Notes
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The issuer of the Debentures is the borrower, whereas the investor is the lender. The issuer agrees to pay the interest and repay the principal as per an agreed schedule.
Credit risk is all about the possibility that the issuer pays the dues, but with some delay or the issuer does not pay principal and the interest at all.
Interest rate risk is the risk that an investment's value will change as a result of a change in interest rates. This risk affects the value of bonds/debt instruments more directly than stocks. Any reduction in interest rates will increase the value of the instrument and vice versa
confirmation bias is the tendency to look for additional information that confirms to their already held beliefs or views. It also means interpreting new information to confirm the views.
Familiarity Bias - An individual tends to prefer the familiar over the novel, as the popular proverb goes, 'A known devil is better than an unknown angel.' This leads an investor to concentrate the investments in what is familiar, which at times prevents one from exploring better opportunities
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