Wednesday, July 31, 2013

The Various Bond Types That You Should Know As An Investor

As an investor, it is imperative that you at least have the basic knowledge about bonds especially if you intend to get your hands into it. To start with, there are two types of bonds: the corporate bond and the government bond. This is a good way of investing your money for future use or for retirement because you get a better interest yield as compared to the traditional ways of saving your money in the bank.

Government bonds are the most stable kind of bonds. It is less risky and has lesser interest rates because it is most unlikely that the government will go bankrupt. These are the debt instruments issued levels of government in order for them to raise funds for certain projects. The government issued bonds are called “Treasuries” and they have other names depending on the length of maturity.  Normally, Bills have a maximum maturity period of one year but at times they can also be less than a year. When you invest in bills you don’t actually earn thru interests but rather, you it at a discounted price and get paid of the actual face value of the bill. Then there are Notes that mature between 2 to 10 years. Anything higher than that is called a bond; it earns interest rates and are paid semi-annually. Then there are Municipal bonds or munis. These are issued by local state governments and agencies. Like their treasury counterparts they also offer interest rates but somewhat lower. They have long maturity rates that reach for as long as 40 years even but their returns are often federal tax free and even state tax free.

On the other hand, Corporate bonds are bonds issued by corporation so they can raise funds just like what they do with stocks in the market. Corporations usually give higher interest to lure investors. However, it is important that you should know that there are greater risks with corporate bonds since you will never be sure if the company you are investing in will declare bankruptcy.

So before in bonds, make sure that you have ample knowledge of the playing field so you will know which ones to invest in best based on your financial goals.

No comments:

Post a Comment

Blogger Templates