Investing in Bonds means giving debt to the companies or government. A company or the government, when in need of the finance issues bonds having some face value.
A bond is a financial contract in which the issuer promises to pay the borrowed amount with the interest to the holder of the bond. The amount is to be paid back to the investor on the maturity after a specific period of time with an interest on that. Interest to be paid on the bonds may be fixed or variable.
By investing in bonds, one becomes the creditors or lender of the issuer.
Investing in bonds is the good option for the short term perspective. This is generally a less risky than equity investments.
Generally, bonds performs opposite to the financial market. Like if market goes up bonds value goes down and if market goes down bond values goes up.
Types of Bonds
Fixed Rate Bonds : Interest is fixed irrespective to the market fluctuations.
Floating Rate Bonds : Interest fluctuates as per the current market scenario.
Zero Interest Rate Bonds : No interest is to be paid to the investors.
Inflation Linked Bonds : Interest on these bonds are totally linked to inflation.
Perpetual Bonds : Bonds with no specific maturity date.
Subordinated Bonds : These bonds are given less priority against other bonds in case of liquidation.
Bearer Bonds : Bearer bonds are payable to the holder of the bonds. These bonds do not carry any name.
War Bonds : Bonds issued by government in case of war to raise funds.
Serial Bonds : Bonds having maturity over a period of time in instalments.
Climate Bonds : Issued by government to raise funds in case of any adverse change in climatic conditions.
Tax Savings Bonds : Issued by government to provide the tax saving benefits to investors.
Government Bonds : Issued by Government or any public sector unit to raise funds.
Corporate Bonds : Bonds issue by the private sector companies.
Banks and other financial institutions bonds : Issue by banks or any financial institution.