Did you know that a bond happens to be a carefully planned instrument suited for investments?
Most of us who have not traded in stock markets or bought bonds for that matter of fact, do not know much about the same. Experts who happen to trade continuously in the stock markets or in the bond markets agree that bonds are nothing but debt securities. Such instruments are available readymade where the issuer is supposed to owe to the buyer in terms of interests payable.
Why do bonds have fixed dates for maturity?
Most of the bonds which are usually issued in the market have a date for maturity. This means any new bond issue will have a period of maturity. Maturity, once again is directly related to the fixed term period within which the interest amount is accrued. The interest is payable after the maturity date is over. As a matter of fact, the rates of interest do vary from one type of bond to the other. Actually, the amount of interest varies as per the amounts of investment in the particular bond. Therefore, bonds happen to be a formal contract between the issuer as well as the investor. In most of the cases, bonds pay interests at regular intervals. But, the way interests are being paid depends on the terms and conditions for the investment.
Why should you buy bonds?
In most of the cases, this is a question that is being asked by most of the commoners. However, experts continuously emphasize that, investing in bonds do have several advantages. Bonds actually are more helpful for the borrower, as it lends funds required by the borrower through external sources. Bonds and stocks are as a matter of fact, very similar in nature. Stockholders do have a significant stake in a particular business organization. But for that matter of fact, bonds are considered to be discreet investments by the investor. This is more often than not, considered to be as a creditor stake in the account of the borrower.
Do bonds have a defined term?
Yes, in most of the cases, bonds have a defined term. This is what is referred to as the maturity period. Stocks do have a term period, but a major difference is that, it can be extended. However, experts do agree that, a bond can be redeemed but not in a similar fashion to that of a stock. However, terms and conditions for investments in both the instruments vary as per the requirements of the borrower. Stock investments can be carried forward for an indefinite period.
Conclusion:
A bond and stock differ in certain aspects, even if both are considered to be investment instruments. Risks for investments are high in both cases, in comparison to the fixed deposits or any other such related instruments. This is because such instruments are subjected to market risks. However, reading the terms and conditions for such instruments remain to be important. Understanding the details of the returns on risky investments is always required in priority!