what is bond investment

What Is Bond Investment – Money For Life

From a past decade, people are always willing to know that what is bond investment? how to invest in bond market? So we thought to provide some useful information on a bond investment that will help you to understand the basic concept of bonds investment.

What Is Bond Investment?

what is bond investment

A man examines the inscription Bonds with a magnifying glass. Assessment of the value and profitability of securities. Investment. Terms and conditions. Face value. Raise money to finance new projects. A bond is fixed income security where an investor lends a money from company or government for a specific period of time in exchange for fixed income when the maturity ends, investors take money from the bond issuer. Bond investment in India is a safe option that gives fixed income and balances out risk over time.

What are the types of bonds?

what are the types of bonds

Bonds having different types and categories that are as follows:

Government Bonds

Government bonds include bills in which period of debt securities maturity is less than one year, notes in which period of debt securities maturity is one to ten years, and bonds in which period of debt securities maturity is more than ten years.

  • Fixed rate bonds – The interest rate is remains fixed till the end of the bonds maturity.
  • Floating rate bonds – The interest rate is fluctuates in between the bonds maturity period.
  • Zero interest rate bonds – In this type the issuer is only pay the principle amount and do not pay any interest.
  • Inflation linked bonds – This is the link between inflation and bonds are called as a inflation linked bonds. The fixed interest rate bonds have higher interest rate than inflation linked bonds.
  • Perpetual bonds – In this type, bonds do not have any maturity date.
  • Subordinated bonds – Subordinated bonds having less priority than other bonds types which are paid first.
  • Bearer bonds – Bond holder’s name is not mention in bearer bond. In case the bond holder misplaced or stolen the bond certificate then anyone with the paper can claim the bond amount.
  • War bonds – In case of war any government is raised the funds through war bonds.
  • Serial bonds – Bond issue that matures in several installments instead of specific date.
  • Climate bonds – Any government is issued climate bonds to raise funds when the country faces any changes in climatic condition.

Municipal Bonds

Municipal corporations are issued the municipal bonds for local government bodies to finance local or social projects like road constructions, building infrastructure, hospitals, bridges,etc in community.

  • General Obligation Bonds – General obligation bonds are used for infrastructure financing and other local needs.
  • Revenue Bonds – The special projects are used the revenue bonds.

Corporate Bonds

Corporate bonds are the bonds that are used for raising the funds for the company operations and expansion purposes like government bonds, municipal bonds. They are offer higher rate of interest because they have high risk than government bonds and the representative banks are sold the bonds.

  • Secured Bonds – Secured bonds have more importance in firm capital structure and having low risk factor.
  • Mortgage Bonds – Mortgage bonds are specially used for providing finance to land and builders.
  • Collateral Trust Bonds – Collateral trust bonds are similar or a form of mortgage bonds that includes stocks, notes and other high quality of bonds.
  • Equipment Trust Bonds – Equipment trust bonds are mortgage bonds secured by transportation equipment.
  • Debenture – These are totally depends on success of borrower payment if he fulfill the promises to pay interest and principle.
  • Subordinated Bonds – Subordinated bonds are nothing but debentures. Only in case of bankruptcy bondholders claim the assets only when the firm has satisfied the claims.
  • Income Bonds – The predetermined interest payment date is applicable for income bonds but if the issuer is earn the income then only interest is paid by predetermined dates.
  • Convertible Bonds – Convertible bonds are gives option to exchange the bonds with firm’s common stock.

What is gold sovereign bond?

What is gold sovereign bond

People also asked what is gold bond scheme? But both questions have the same answer, buying gold coins and gold bars as an investment is not profitable as compared to investing in gold bonds because it gives great returns. Just like a bank fixed deposit, the gold bond allows you to catch the price movement and pay you fixed interest. The sovereign gold is paramount in a unit of one gram of gold it means you can buy a minimum of 1 gram and a maximum of 4kgs per investor per financial year. When someone asked what is bond investment then many banks suggest a sovereign gold scheme because it is a simple but smart way to invest in bonds and physical gold. And there is a nomination facility is also available. After purchasing the sovereign gold bond the holding certificate is issued in the name of an investor. The issue period of sovereign gold bond are eight year and investor can sell their bonds at the market rate of gold in the secondary market.

Government bond definition

government bond definition

A government bond represents debt security issued by the national government hence it is considered a low-risk investment. It is also called a coupon payment because it pays periodic interest payments. The money is raised in government bonds to operate the government. When the government needs the fund for development, for financing spending these types of bonds are helped. The maturity dates for these bonds are from one month to 30 years and because of government bonds, people at least get interested to know what is bond investment.

Advantages and disadvantages of bonds

IN Advantages Disadvantages
1. It is a fixed returns of investment option where investor know the maturity time and how much amount is gets after maturity. To invest in bonds you have to need the largest amount for investment.
2. The bond investment is having low risk factor because the national government is involved in this. The chances of bankruptcy is major disadvantage in bonds.
3. The bonds investment is less volatile than stock market. These are less liquidity compared to stock investment.
4. It has clear ratings and fixed income rates unlike stocks and mutual funds. It involves high credit risk factor which may destroy your future investment.
5. The investor is protected in this investment and it is a major advantage. It also involve inflation risk, call risk and other risk factors.

Conclusion

At the initial point people even do not know what is bond investment but after reading this article they definitely know and are clear about bond concepts. In this article we coverd all points which are highly recommend by public that includes government bonds, sovereign bonds, advantages and disadvantages of bonds,etc factors.

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