Reliability and yield of bonds

The most reliable investment in the market representing securities is investment in bonds. By this type of investment you can get a higher return than on bank deposits.

Bonds are usually purchased at a price below par, and bond redemption occurs at a nominal price. The resulting difference determines the yield of bonds and is the income of the investor.

Investments in bonds are similar to bank deposits, in both cases, money is invested at a certain percentage and for a certain period. But in the case of bonds, there are advantages.

First, the yield of bonds on corporate issues is higher. Secondly, the money can be collected without losing the accrued interest. Bonds unlike a bank account can be sold without loss of interest, if you close the bank account ahead of schedule, no one will pay interest.

The bond market is intended primarily for conservative investors. Fluctuations in prices on bonds are scanty compared to changes in stock prices. In the case of bonds, the principal income is interest or coupon payments. Also, the income is affected by the change in the market value of bonds.

The yield of bonds of this type varies depending on their reliability. From the existing offers on the market, the investor is given the opportunity to choose the best combination of profitability and risk. There are bonds of reliable large companies, usually with low interest payments, and there are junk bonds of small companies with a certain risk, but with high interest rates. The bonds are especially profitable for companies that are just starting to bring their securities to the market.

Distinctive features of bonds

Bonds are securities. Buying them, the investor is a creditor of the issuing company that issued bonds that are considered debt securities. According to the rules, the issuing company is obliged to pay to the bondholder their nominal value at the end of the circulation term, as well as income in the form of interest on the face value of the bond. Thus, the bonds are redeemed.

The investor has the right to sell the bonds ahead of time or wait until the end of the circulation period of the securities. At the end of this period they will be repaid. The usual maturity of the bond is from three to five years. The nominal value and income are transferred to the investor's account.

Buy bonds, as well as stocks can be in various ways. You can use the Internet. Access to all major stock data on bonds can be accessed through special trading terminals that broadcast and record bonds for all bidders. You can make a purchase of bonds through a broker, it's only necessary to phone about it on the phone.

When investing in bonds, you should pay attention to some key points. Such as maturity, credit quality, bond accounting, tax status, conditions for early repurchase, price, yield, interest rates. Having studied these factors, the investor can make an estimation of debt obligations, and independently decide what degree of investment in bonds corresponds to its purposes.

By maturity, the bonds are classified into three groups.

The first includes short-term bonds with a maturity of up to five years. The second group includes medium-term bonds with a maturity of five to twelve years. The third group includes long-term securities with a maturity of more than twelve years.

It should be borne in mind that different bonds have different credit quality.

In general, investing in bonds is the most reliable investment in the stock market and it is recommended that they be made to those who need to save capital and earn a higher return on banking.