Bonds investment are loan agreements made between companies or governments and investors. In this case, it is the government or business that borrows money from the investor for set period to be used for funding purposes. In a sense, the company or government is indebted to you, the individual bond owner. Typically, the party issuing the investing in bonds offers them to the public for an approximate sum of $1,000. After that, once the investor has purchased the bonds investment, an amount of interest is paid to the owner of the bond throughout the loan period. The amount paid is also established at the beginning and noted on the bond note itself along with other information like the par value, coupon rate, and maturity date.
Another name for investing in bonds is "fixed-income" securities. This means that the amount of income (interest) that the bond produces each year will remain at the identical rate in the course of the bond's life. Thus, it is fixed or set regardless of circumstances.
In bonds investment there are four types of bonds that are offered and each one is defined by the part that is selling it. You have federal government bonds and those by other government agencies, corporate bonds, state and local government bonds, and bonds that are sold by foreign governments.
First to addressed are those investment bonds that sold by the federal government. Issued by the Treasury Department, these government bonds are commonly called "Treasuries." You can find different types of treasuries including treasury notes, treasury bills, inflated-indexed notes, and treasury bonds, which are all differentiated by maturity rates and the quantities of interest paid. The treasury department is also the issuer of different types of saving bonds.
You also have investment bonds offered by related government agencies like the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and the Government National Mortgage Association. These bonds are afforded coverage and used for a variety of purposes, like home ownership.
Next, you have corporate bonds that are issued as debt by companies and sold on just like stocks on the exchanges. These kinds of investment bonds are what investors will be interested in, especially if the interest rate is good. Within this category, you have what are called high yield or "junk" bonds and convertible bonds. The former are issued by companies that don't meet the formal credit investment parameters, while the latter is bonds that can be changed into stocks under certain conditions.
Then you have municipal bonds or those that are issued by the state and local governments. To be competitive enough with other types of bonds, these municipal or "munis" are often adjusted to make them more appealing. Some are exempt from federal taxes. Other states waive the state and local income taxes to offer reasonable bonds.
Lastly, before bonds investment, you should note that, if circumstances are such that you need to break the bonds before they mature, you can do so. However, this will result in you either make much lesser money than expected or even losing money.
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