DO YOU KNOW WHAT ARE FINANCIAL BONDS ?

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Bonds are issued by governments, corporates, or municipalities to investors. This is a type of loan that is divided into small units and sold to investors during debt.

The issuer of the bond agrees to pay the complete loan amount once it is matured and also the agreed Interest amount.

Bond prices vary depending on the interest paid by the issuer of the bond.

Corporate Bonds pay a higher rate of interest when compared to government bonds but the risk level is high.

Bonds can be a fixed income source as they pay fixed interest which is predetermined when the bond is issued.

Bond maturity level starts from 0-100 years, generally, it matures between 1-30 years. These maturity levels can be as short term(1-3yrs), mid term(3-10yrs), and long-term (greater than 10yrs).

All the bonds do not reach their maturity level, even when the investor waits for them. This is called a callable bond, wherein the issuer agrees to pay the bond amount before maturity.

The pricing of the bond depends on the face value of the bond. The prices may vary depending on the asking price called a discount, wherein the interest rate reduces due to a discount in buying and vice-versa.

The interest received from the bond is called a Coupon, for which the investor has to pay income tax.

To avoid tax payments on coupons received one can use a tax-sheltered account like IRA.