Bonds are fixed-income securities issued by governments, corporations, or
other entities to raise capital. When investors buy bonds, they are
essentially lending money to the bond issuer in exchange for periodic
interest payments (coupons) and the return of the principal amount at
maturity
Types:
Government Bonds
also known as sovereign bonds or treasuries, are issued by national
governments to finance government expenditures and manage public
debt. They are low risk investments.
Corporate Bonds
are issued by corporations to raise capital for various purposes, including expansion, debt refinancing, or working capital. Corporate bonds offer higher yields compared to government bonds but carry higher credit risk, as they are subject to the creditworthiness of the issuing company.
Bank Bonds are debt securities issued by commercial banks
Public Sector Undertaking (PSU) are typically issued by government-owned companies or entities that operate in strategic sectors of the economy and are backed by the credit strength of the government.
Non-banking financial companies (NBFC) are financial institutions that provide banking services without meeting the legal definition of a bank. NBFCs may issue bonds to raise funds for lending activities, capital expenditure, or business expansion.
Disclaimer: Each type of bond has its unique characteristics, risk profiles, and investment considerations. You should carefully evaluate factors such as credit quality, interest rate sensitivity, maturity, liquidity, tax implications, and investment objectives when selecting bonds.
PRO'S
Income Generation:
Bonds provide a steady stream of income through periodic interest payments (coupons) paid by the bond issuer to bondholders.
Preservation of Capital:
Bonds are generally considered less volatile than stocks and offer more predictable returns. The principal amount invested in bonds is typically repaid in full at maturity
Liquidity:
Bonds are relatively liquid investments that can be bought and sold in the secondary market, providing investors with flexibility to adjust their investment holdings
Tax Advantages:
Certain types of bonds, such as municipal bonds, may offer tax advantages, including exemption from federal income tax
CONS
Lower Returns:
Bonds generally offer lower long-term returns compared to stocks or riskier asset classes.
Credit Risk:
Bonds issued by lower-rated entities or with higher levels of debt carry credit risk. If the issuer experiences financial difficulties, bondholders may face losses or delays in receiving interest payments and principal repayment.