Strategic Investment in Bonds is Beneficial

Author: hostarticles | Posted: 12.01.2012

The bond market is a huge one and millions of bonds are issued each year. They are first sold in the primary market and then traded in the secondary market. They owe a face value after creation. They are both short-term and long-term. Bonds are also known as fixed-income securities, debt instruments, credit securities, etc. bonds issued by cities and states named as municipal bonds are aimed to raise revenue in order to spend in institutions, roads, and other public amenities. They are also used to complete projects planned for public benefit. They offer tax-free returns as interest is free of taxes. They act as a promise for the government and corporations because these are issued when they are in need of money and borrow money by selling bonds and again they repay the money after making profit at a certain point of time. While purchasing bonds, you need to study carefully the legal document which contains the terms and conditions including interest rate and pay-back period. Since a rise in interest leads to fall in bond prices, this may affect you if you sell them before maturity period. The yield curve, shows the relationship between the interest rate payable on a bond and its maturity period.

Investment in bonds helps to avoid the risk to a great extent and get higher returns than saving money normally. Though bonds are said to be safe investment, but there are few risks associated with it like liquidity risk and inflation. Those issued by the government and its agencies are safe, but those issued by corporations may involve some risk. It is advisable to avoid secondary market for buying or selling of bonds as it lacks security. The bonds are ranked accordingly by the credit rating agency.

Article was printed from http://www.articleside.com/business-articles/strategic-investment-in-bonds-is-beneficial.htm
Click here to return original format