Investment in Bonds-By Radha Kishan

Investment in Bonds
-By Radha Kishan

Do you take money from someone and give it back after paying the same amount but along with interest?Than in a way you have taken a loan from them.Similarly you also borrow money from municipality,government, corporation,some of the non-profit organizations,special purpose trusts and other entity in the form of bonds.The issuer of the bond make a contract with you to pay you certain amount of interest along with the face value of the bond after the maturity period of the bond as per the contract.There are various types of bonds issued by various organisations and government agencies.

If you have decided to invest your savings in bonds,you need to know what kind of bond investment is good for you.Its better to get your bonds from bond market rather than stock market as bond market has more choices for you than the stock market.What are your goals? What are your tax situation? What are your risk tolerance? Depending on these certain questions you can choose the type of bond which is best suited for you from various kinds of bonds like international bonds,government bonds,corporate bonds,euro bonds,foreign currency bonds,convertible bonds etc.

You must be knowing that various corporations have the ability to issue shares of stock to individuals and issue bonds to individuals and thus lending money to the business.Such bonds issued by various large and small corporations are called corporate bonds.Most large manufacturing firms are organised as corporations.However the interest you receive from corporate bonds are taxable.

In the country like USA bonds are issued by organisations like state,city or other local governments or their agencies.Such bonds are termed as municipal bonds.The issuers of such bonds also may include redevelopment agencies,airports or seaports owners,countires,other government agencies below state level etc.The good thing about municipal bonds is that these type of bonds are guaranteed by a local government or a group of local government.The income received as interest along with municipal bond is often exempt from income tax.However sometimes municipal bonds issued for certain purposes may not be tax exempt.

There is a type of bond which is 100% risk free and is issued by the national government of a particular country in the country currency itself.Such type of bond is called a government bond.However when the same bond is issued in other currency than that bond is called sovereign bond.Government bonds are risk free because government has the option to raise other types of taxes to cover losses but they pay to the investor as promised.To get more details please visit http://en.wikipedia.org/wiki/Government_bonds.

There are certain types of bonds which are issued in the same currency as per the country involved in issuing those bonds but these bonds are also traded outside of that country in a different type of monetary system.Such types of bonds are called eurobond and these bonds are named after the currency of that particular country.However euro bonds are not traded on a particular national bond market.Most of these bonds are now a days owned in electronic form instead of physical form.As the Eurobonds are spread throughout global markets, most of them are of a type known as Bearer bonds. A Bearer bond is officially owned by whoever is in its possession.

There are certain bonds which are based on the fact that they are underlying pools of assets.Such types of bonds are often termed as Asset-backed securities.A trust for a special purpose is made which is ready to take titles to the assets and the flow of cash are passed through to the investors in the form of backed asset security.Such types of bonds are often illiquid and private in nature.

There are certain types of bonds which gives the investor the right to convert or exchange the par amount of bond at some particular ratio during a specific period for common shares of the issuer.Such types of bonds are known as convertible bond.Their quality of conversion also provide them the feature of equity securities.

To know more about different types of bonds please visit http://www.finpipe.com/typbond.htm.

So to make your investments in various types of bonds make sure you completely understand the characterstics of all types of bonds and the type of bond which is best suited for you.Hope you have a great future for your investments in bonds.