Why buy Bonds

Buying bonds

Introduction

Bonds are debt securities whereby the issuer of the bonds which in most economies is the government has an obligation to repay the amount plus interest . Therefore bonds can be termed as loans which are in form of securities whereby the principle amount is paid plus the interest rate .Bonds can therefore be defined as a debt certificate issued the government or even a corporation with guaranteed payment principal amount investment plus interest on a future date . Bonds will involve the giving of a loan to a government

and corporation and the holder of the bond gets paid for lending the money

The advantage of bonds over other securities such as stocks is that they have a defined maturity when the bond is redeemed . For this reason therefore there are many added advantage when one invests in bonds However there exist many types of bonds that available to the market including government bonds and corporate bonds

Type of bonds

There exist many types of bonds depending on the issuer of the bonds bonds can be issued by the government or other agencies , these type of bonds include

War bonds

These are bonds offered by the government in case of war , when there is war then the government issues bonds in to finance these wars this are referred to as war bonds

Zero coupon bonds

These types of bonds do not earn any interest , the holders of the bond aquire the bond as a form of savings and the only amount paid is the principle amount

The fixed rate bonds

This type of bond has a coupon that is fixed throughout the period it is held , this type of bond has minimum risk of fluctuations and therefore it is one of the best bonds to invest in

The floating rate bond

This type of bond is based on a market index and in most cases it depends on the money index , in this type of bond the rates are adjusted frequently and therefore the terms of returns are likely to change over time

Asset backed bonds

These types of bonds are usually backed by the cash flow from asets example bonds backed by mortgages

Perpetual bonds

Perpetual bonds are those bonds with no maturity period , these type of bonds can last even for a hundred years but their rate of return and principal values are usually very low than any other bond

Bearer bonds

These types of bonds are different from the others in that they do not contain a holder 's name , for this reason therefore any person holding the bond can claim the value . This type of bond is easily transferable from one person to another than any other bond

Registered bond

Registered bonds are the opposite of the bearer bond this is because it contains the name of the holder and when the bond matures the earnings are sent to the holder

From the above discussion we have derived the various types of bonds...