Bond is simply an investor owned utility (IOU) in which an investor agrees to loan money to a government agency or to a company for a predetermined interest rate. The interest rate paid on bonds depends on several factors such as financial strategy of the government in power or the strength of the corporation; current market interest rates, and the length of the term. As these factors fluctuate over time, the market value of a bond may also vary after it is issued.
Bonds are normally issued by governments, corporations, municipalities, supranational agencies such as the European Investment Bank or the Asian Development Bank and credit institutions. All these entities require money to operate. They borrow money from the public by issuing bonds. The agency or company issuing bond promises to pay original principal along with interest that is due by a set date called maturity date.
Also known as fixed-income investments, bonds assure a regular and steady income to investors. There are different types of bonds, each having its own characteristics and features. Corporate bonds, US treasury notes, municipal bonds, agency bonds, and zero coupon bonds are some of the types of bonds. Just like stocks, bonds can be sold and bought from the open market. They are traded mostly by institutions such as insurance companies, pension funds, and banks.
Compared to stock, bonds are liquid and can be cashed anytime after six months of their issue date. It is also possible to sell one's investment in bonds. Investing in bonds is safe because it guarantees to return the entire principal amount along with interest, which is a valuable income for retired couples and individuals. Interest is paid to the bondholder either monthly or quarterly.
Bonds also offer tax benefits for certain investors. For instance, the interest earned from bonds that are issued to raise money for building bridges and roads is always tax exempted. Hence, bonds are beneficial for those who are retired or want to reduce their total tax liability.
Bonds provides detailed information on Bonds, Stock and Bonds, Savings Bonds, Bail Bonds and more. Bonds is affiliated with Commodity Brokers.
