Investing in Bonds

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Not for Beginners

Bonds might not be the best option if you are a beginner in the investments market. There are many types of bonds which bring about different types of mechanisms and systems. This includes corporate, retail and more commonly government bonds.

A bond is a type of investment where you basically lend money to the organization issuing the bond. The general agreement here is that they will pay you back in full on an agreed time and date. On top of that, there will be interests too.

Stability

Because the interest rate, maturity date and such have all been agreed beforehand, you know for sure how much your returns will be. This makes bonds something which you can plan for the future. What the company aims to do really is to raise more capital which would be a calculated move.

Coupons

In bonds, interest rate is known as coupons. This is the conventional idea of bonds in which bond owners would be given a certificate with a tear-off coupon. When the time comes to claim their interest, they will tear off the coupon and carry out the specifics.

In bonds, the annual interest rate is commonly known as the ‘coupon’. This is usually a fixed percentage from the value of the bond that you have paid for.

When should you buy?

Unlike shares, there is an offer period when it comes to investing in bonds. Take note that when a company issue a bond, the idea is to raise a certain amount of funds based on the interest rate they can afford to give.

Hence, the organization will release an offer period where investors can buy the bonds. However, the period could be closed earlier if the total amount needed has been raised. The same situation would be evident if the organization could not raise enough funds after the offer period ended and could opt to extend it.

Investing

In most cases, you will need to provide a minimum amount as initial investment. This could be as high as tens of thousands or could just be a few thousand. Once you have done that, you can then invest in lower amounts.

In bonds, what it actually mean is that the more you buy, the higher your returns will be. After all, the interest rate has been agreed beforehand. However, returns take longer than other forms of investments where the later you buy, the longer it will take.

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