Investment in debt securities comes with a certain degree of risk, which is why investing in these securities should be carefully considered. The main risks of these types of investments are inflation and credit risk. Both of these risks can have a negative effect on the value of the bonds, and investors should make sure they fully understand their risk profile before making an investment.
The accounting treatment of debt investments differs from other forms of securities. For example, entities must present individual amounts for cash flows associated with held-to-maturity securities, while cash flows related to trading securities are reported on a net basis. Additionally, debt securities that have contractual maturities must be included in the most recent statement of financial position.
As compared to equity securities, debt securities have a lower risk profile. They can also be a more stable income source. However, the return on debt securities is generally lower than that of equity securities. Investment in debt securities can be made easier with public markets like Catalist. This market enables periodic trading in debt securities.
There are other risks associated with debt securities, including credit and market risk. As interest rates rise, the value of debt obligations falls. As a result, the timing of debt transactions is also affected.