Bonds

What are Bonds?

A bond is simply a long-term loan. Most people have at some stage applied for a loan at a bank and had to pay interest on the amount of the loan. The bond market operates in exactly the same way. A bond is a financial instrument that promises that the borrower (a company or a government) will pay the holder (investor) interest over a period of time and repay the full amount of the loan on a predetermined maturity date. Just as people need money, so too do companies and governments.

Why invest in Bonds?

Bonds provide investors with a regular and steady income in the form of interest while preserving their initial investment amount (principal). They can help investors spread assets across different asset classes of the financial market, thereby minimising the risk of concentration in any one asset class. Bondholders usually have priority over stockholders when a company is liquidated and more likely to receive payment. Bonds are usually evaluated and rated based on credit history and ability to pay interest and repay obligations on time.

How to invest in Bonds

Investors can buy and sell bonds through a broker, just like shares. If you are not already a client of a broker, you will be assisted by your broker to set up an account and transact with a minimum delay. Your broker will be able to offer you advice and trade on your behalf.