Bonds are loans made to large organizations. These include corporations, cities and national governments. But bond is piece of loan. Because, entities require them to borrow money from more than one source. However, organization borrowing promises to pay bond back at an agreed date. Until then, borrower makes agrees to pay interest to bondholder. Hence, you can check bonds vs stocks.
What is Bond?
Bonds are debt and are issued for period of more than one year. Debt instrument issued with purpose of raising capital by borrowing. In addition, like federal government, states, cities, corporations and other organization. Hence, advantages and disadvantages of Bonds. And find below types of bonds and performance of bond.
Generally, bond is promise to repay principal along with interest on specified date. Bonds are usually resold before they mature at end of loan period. But, there is secondary market for bonds. The value of bond rises and falls. Hence, check Tax on bond funds for long term capital gains
When you purchase bond it means you are lending company or government money. And bond issuer is borrower. It agrees to pay whoever holds bond interest on regular basis then return principal amount on loan when bond matures. This can make bonds attractive for people looking for stable investment. Some bonds do not pay interest, but all bonds require repayment of principal.
However, buyer does not gain any kind of ownership rights to issuer, unlike in case of equities. You will choose to buy bond funds for two reasons. For income and diversification. Bond funds tend to pay high dividends than money market and savings accounts. They usually pay out dividends more frequently than individual bonds.
Types of Bonds
If you decide to invest in bonds you need to find right bond. Most people don’t realize it. But bond market offers you lot more choices that stock market. Hence, see type of government bonds funds. Depends on your goals tax situation and your risk tolerance.
Like U.S. government bond funds, municipal bond funds, and corporate bond funds. But returns of these bond funds differ according to amount of risk in each fund. Hence, you can see types of corporate funds. You can also see money market meaning and Types of Money Market Instruments
US Bond Funds
U.S. government bond funds invest in debt securities that are issued by United States government and its agencies. And also called agency bonds. These funds are safe bond funds. Because underlying securities are backed by full faith. However, fund itself is not backed by government. Funds invest in such debt instruments as Treasury bills and Treasury notes. In addition, like Treasury bonds, and mortgage-backed securities issued by government. Certain U.S. government bond like Treasury funds are exempt from state and local (but not federal) taxes. Hence, high risks involved in investing in these funds.
These bonds are offered by corporate houses and are open to everyone. However, these bonds are not safe as government bonds. Thus company can issue bonds just as it can issue stock. Moreover, issuing companies are depending on market volatility, industry ups and downs, etc. Generally, corporate bonds have less than five years maturity.
Similarly, corporate bonds include convertible bonds that you can convert into stock. And callable bonds allow company to redeem an issue prior to maturity. Corporate bond funds invest only in most creditworthy of companies. All corporate bond funds are safe.
Convertible bonds: They can be converted into a pre-defined number of stocks as and when required by the investor.
Non-Convertible bonds: Non-convertible bonds are just plain bonds.
Municipal bonds are issued by various cities. These are tax free but have low interest rates than corporate bonds. They are slightly more risky than bonds issued by federal government. Municipal bond funds invest in debt securities issued by state and local governments. To pay for local public projects. Like bridges, schools and highways.
These bond funds are popular with high incomes. Because they are exempt from federal taxes and in some cases from state taxes as well. As with U.S. government bond funds underlying securities in municipal bond funds are backed by government. Thus they are considering having high credit rating. However, municipality has declared bankruptcy to make these funds more risky than U.S. government.
Other Types of Bond Funds
Besides, there are many other types of bond funds. Zero-coupon bond funds invest in zero coupon bonds. International bond invest in bonds issued by foreign governments and corporations. Convertible securities funds invest in bonds that may be convert into stock.
And if you are looking to diversify your holdings even more there are multisector bond funds. Those invest in all different types of bonds. Like corporate bonds, municipal bonds, international bonds and so on.
Finally, check names of government bonds in India. See best bond ETFs for 2017. However, check tax free bonds funds. In addition, see High Yield Bonds fund and Best bonds. Probably, to know more details see 10 best investment bonds. Hence, you can see Best dividend stock.