New Delhi, Aug. 28 -- A bond default occurs when an issuer fails to pay interest or repay principal to the bondholders. Such a default can cause immediate liquidity problems for investors across the country. The recent default by the state-run telecom organisation MTNL on its sovereign debt, i.e., guaranteed bonds, has again brought this issue into sharp focus. It becomes extremely important for retail investors to understand the reasons behind such defaults, even more so if they are looking to expand investments in the fixed income sector.

Bond defaults disrupt investor expectations of potentially safe-looking income. It can cause severe reversal of fortunes and capital loss, especially in corporate bonds without government backing.

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