What is Bond

Do you know about bond? It is a debt security provide by a corporation, municipality, goverment or other’s agency. To get profit from bond, you need to get payment from the issuer based on specified rate of interest. The bond concept need you make a formal contract between investor and issuer. Bonds can be purchased at face value or with a discount or a premium, depending on the interest rate of the bond and the bond market.

Why Invest In Bond ?

There are 4 main reason

premium-bonds

Diversity

Bond that combined with stock can give more stable portfolio.

Income
Bond will pay on a regular basis and it is good for monthly income especially for those retired people.

Security
Bond is more safety investment place.

Tax Free
Some of country give a tax free income for those invest in bond. It will give you lower yield return but you can saving a lot escape from tax.

 
Type of bonds

stock-finance

1.    Savings bonds--> issued by the Treasury Department and are in low enough amounts to make them affordable for individuals.

2.   I Bonds, –> issued by the Treasury Department and are adjusted for inflation every six months.

3.   Junk bonds/High yield bonds–>it issue from corporate companies.

4.  Corporate bonds,— > sold by the representative bank.

5.  Savings bonds–> issued by the Treasury Department and are in low enough amounts to make them affordable for individuals.

6.  Municipal bonds–> issued by various cities. These are tax free, but have slightly lower interest rates.

7.  Treasury bonds –> issued by the Treasury Department but their investment is higher.

Risk of bonds

There’s a risk of investing of bonds such as :-

Inflation Risk: Because of their relative safety, bonds tend not to offer extraordinarily high returns. That makes them particularly vulnerable when inflation rises.

Interest rate risk: Bond prices have an inverse relationship to interest rates. When one rises, the other falls.

Default Risk: A bond is nothing more than a promise to repay the debt holder. And promises are made to be broken. Corporations go bankrupt. Cities and states default on muni bonds.

Source :- About.com

 

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