Characteristics of Bonds

Bonds are known as fixed income or fixed interest securities because the interest payments are fixed in advance and paid on a regular schedule.

Following are the main characteristics of bonds:

1) A bond is a type of security that gives the holder a financial claim on the issuing company. When you invest in bonds, you are loaning money to the issuer, and you are entitled to receive regular interest payments as well as the full return of your principle at a maturity date.

2) Bonds in general are considered less risky than stocks because they carry the promise of returning the face value of the security to the holder at maturity.

3) Most bonds pay a fixed rate of interest income until they mature.

4) There are many different types of bonds such as government bonds, foreign currency bond, etc. Corporate bonds usually offer higher yields; Government bonds are usually referred to as risk-free bonds; Convertible bond gives the holder the right to convert it into common stocks of the issuer within specified time after issuance.

* Next: Why Invest in Bonds?
0 comments: