The Financial Conduct Authority (FCA) has issued a further warning to consumers about the risks of investing in corporate bond funds.

The regulator highlighted concerns about liquidity in the underlying market, saying ‘in very extreme market conditions, fund managers could become unable to sell sufficient quantities of bond holdings to fulfil redemption orders, leaving investors unable to sell fund units’.

The FCA also warned that rises in interest rates would likely push down bond prices, while although low, default risk in the corporate bond market also remains.

The regulator urged to investors to consider whether they might need quick access to their money invested in the asset class and whether the risk/reward profile fits with their risk tolerance.

‘These funds are not risk free and the risk factors associated with them should be taken into account when deciding if they represent an appropriate investment opportunity,’ the FCA said.

Back in July 2012, the regulator wrote to major asset managers asking for details on whether they could meet redemptions as investors continued to invest in the asset class while liquidity levels were falling.