A Beginners Guide to Investing in Bonds – How to Make Money From Bond Investments
In today’s world most of the investors prefer to make investments in bonds as it helps creating a properly balanced portfolio for them. Bonds are nothing but loans. They are basically investor owned utility where the investor provides a company or a government agency with loans for a period that is more than a year. The company or the agency will issue bonds against the loan provided by the investor. These investments potential to pay the investors some interest along with the principal amount on a particular date known as the maturity date.
The bonds are generally issued by companies or corporations, government, government sponsored institutions like Federal Home Loan Mortgage Corporation, credit institutions, supranational agencies like the Asian Development bank or the European Investment Bank and various other institutions. However, at present different types of bonds are obtainable in the market. The different types depend on the credit quality, maturity, issuer kind and tax position. Besides, bonds can be both secured and unsecured. The different types of bond include fixed rate, inflation connected, high provide, asset backed securities, zero coupon, perpetual and subordinated bonds.
However, there is a big difference between stocks and bonds. The latter potential the investor to return the total principal amount along with some interest. However, stocks make no potential about the returns or dividends. Again the time limit of bonds is finite, while stocks do not have any definite time limit. However, similar to that of stocks a person can buy the bonds from the open market.