Bonds are balance instruments that are subject by companies, municipalities and governments to raise funds for financing their wealth costs. Through purchasing a bond, an investor loans money for a fixed period of time at a predetermined interest rate. Even as the interest is paid to the bond holder at regular intervals, the principal amount is repaid at a later date, recognized as the maturity date. Even as equally bonds and stocks are securities, the principle difference between the two is that bond holders are lenders, even as stockholders are the owners of the association.
Types of Bonds:
The main types of bonds are:
1. Government Bonds: These are fixed-income debt securities issued by the government. Government bonds are more categorized on the basis of the word (maturity duration).
- Government Bills: These are government bonds with a middle age period of less than one year.
- Government Notes: These are government bonds with a maturity period from one year to ten years.
- Government Bonds: These are government bonds with a maturity period that exceed ten years.
2. Municipal Bonds: These are debt securities issued by state governments and their agency. The attention is accepted from central income tax or local tax.
How Bonds Trade:
3. Corporate Bonds: These are debt instruments issued by a company and backed by its skill to produce profits or by the present value of its physical assets.
Bond trading is typically complete throughout bond dealers and can obtain place wherever where a buyer and seller strike a deal. Unlike for equities, there is no exchange for bond trading, which typically takes place in an 'over-the-counter' market. The exceptions for this are positive corporate bonds, chiefly in the US, that are listed on an exchange. Moreover, derivatives, such as bond futures and positive bond options, are traded on exchanges.