BONDS
INTRODUCTION
A bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds. Bonds can be in mutual funds or can be in private investing where a person would give a loan to a company or the government.
TYPES
- Treasury bonds- Treasury bonds (T-bonds) are government debt securities issued by the U.S Federal government that has maturities greater than 20 years. T-bonds earn periodic interest until maturity, at which point the owner is also paid a paramount equal to the principal
- High Yield Bonds- The bonds' higher yield is compensation for the greater risk associated with a lower credit rating. High yield bond performance is more highly correlated with stock market performance than is the case with high-quality bonds
- Municipal bonds- Municipal bonds ("munis") are debt securities issued by state and local governments. These can be thought of as loans that investors make to local governments, and are used to fund public works such as parks, libraries, bridges & roads, and other infrastructure.-
Investors can purchase individual bonds and bond mutual funds. Holding bonds till it reaches maturity level reduces market risk.
Investing in bond mutual funds lets individuals diversify among many different bond issues, thereby reducing credit risk. Interest-rate-risk can be lessened down by investing in shorter-term bonds.
Before investing in bonds, the investors should carefully read the prospectus of the issue with specific consideration on the following:
- Financial Information and Credit Rating Report of the Issuer
- Investment details
- Application and allotment instructions