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By: Ikedi Ani-okoye.

Introduction to Bonds

A bank or institution will give you bonds In exchange for you lending them money, they issue a bonds that promises to pay you back in the future plus interest.

Questions and answers about bonds

Bonds are they risk free?

A bond has low risk elements but nothing is risk free. If you buy corporate bonds, this means that you are buying a claim to their assets. Just like a normal person big corporations also take on debt, which they have to pay back, they take on debt in an hope to grow. they can take on too much debt which thtey are unable to pay back. just like a normal person being unable to make credit payments. If a companies files for bankruptcy they will not be able to repay the bonds that you bought from them. This means that you as the investor can theoretically lose all the bonds that you have invested in themt, fortunately bonds are not usually lost this way.

If you invest in bonds, they can be sold o the market at any time. similar to stock bonds have an assigned price determined by the market. when you sell it on the open market, you should keep in mind that people will want to know the interest rate of the bonds pay out and the rate the market values it at. For example, if you own a bond paying 5% interest and you want to sell it when the interest has gone up to 9% you're going to get a lower price than what you paid. A person could easily get a new bond, instead of your bond.

The different types of bonds

Municipal Bonds-Municipal bonds are also known as ‘munis'. They signify the bonds, which have been issued by municipal corporations. Municipal bonds allow the holder to claim tax exemption.

Corporate Bonds-Corporate companies float corporate bonds. These bonds carry quite a higher risk factor no matter how big the corporate house is.

Government Bonds- If a government authority wants to raise funds they generally issues government bonds. These are also risk free in nature and can also provide the owner with tax exemptions.

Saving Bonds-The government will also issues savings bonds. A huge advantage of these bonds is that you can get tax exemptions by investing in these bonds. Features of mutual bonds-It is always very important to understand the features of what ever particular bond you want to invest in. factors to consider are Maturity period, purchase price and financial constraints also deciding factors, these should all be taken into account when investing in mutual bonds.

CONCLUSION

Bonds are a very good over looked investment considering the low risk bonds have it is amazing how many people know nothing about them. bonds are also very simple to undestand, you buy them an sell them if you want to. They key to investing in bonds is to have a plan of keep the bonds for a long period of time. Bonds are traditionally a long term investment.  When investing in corporate bonds, always read up on their current bond rating. A bond rating is a letter grade assigned to each bond to tell investors how risky it is. Stay away from "junk" bonds.