New Delhi, May 28 -- For many investors, bonds sit in the "safe and low impact" bucket. They are seen as instruments that protect capital and provide regular income, but not necessarily as investments that can improve long-term portfolio outcomes. This perception is only partly true. The real risk in bond investing often lies not in the asset class, but in the investor's speculative approach to it.

The most important relationship to understand is between bond prices and yields. When yields rise, bond prices fall. When yields fall, bond prices rise. This inverse relationship is central to bond investing because market interest rates determine how attractive an existing bond looks compared with newly issued bonds.

Suppose an investor hold...