SHARETIPSINFO >> Articles Directory >> Bonds another type of long term investment
The terms in finance might seem strange to a common man. But understanding these jargons is necessary to attain a stable financial status and to make money from investments. There are often terms confused such as a loan and a bond. The terminology used in them varies greatly and the security associated with a bond makes the great difference between a bond and a loan.
A bond is issued by a bond holder to an issuer. It is often given in the form of a security. The money owed by the issuer in this form has to be repaid to the bond holder along with the interest. This interest is referred to as a maturity. The total amount repaid by the issuer at a later time is known as maturity.
In a financial market, the bonds are often issued to a larger mass and with a larger issue than what a note is intended to do. Bonds have the highest risk as compared to notes and bills. Bonds are issued by the lender to the issuer with certain limitations. The bond issuer is supposed to reveal some information to the holder.
Bonds are issued for a longer time period. The usual time period for which bonds are issued can be ten years or even more. Bonds can be issued by any organization. There are various limitations in the issue of bonds. Legal regulations govern the issue of bond by organizations. Public authorities or credit institutions can issue bonds. There are companies that can give away bonds.
Underwriting is the most popular method in which bonds are issued. Here a syndicate of different organizations buys bonds. They then give away these bonds to their investors. Government bonds are issued through auctions.
The commonly heard terms in connection with bonds are issue price, coupon, maturity date and coupon. Issue price is the price at which the investor gets the bonds from the issuer. Maturity date is the date on which the issuer has to pay back the nominal amount. When this is done in the right manner, the bond issuer is free from the bond holder. Coupon is the interest rate in which the issuer pays back the bond to the holder.
In terms of risk bonds are the highest risk holding factors in the financial market. Yet there are proper prohibitions and laws governing the buying and selling of bonds. Investing in binds cannot hence be considered as highly risky.
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