Bond is known to be a debt instrument. We will see some facts about bonds. Bonds are essential parts of money market. Bonds are vastly used by giant companies as long term debt. Key benefit of issuing bonds is government or company can gather huge capital when they are in need. There are also some bonds called short term bonds. Companies use different type of bonds for their different type of needs.
5 Interesting Facts About Bonds
Companies or governments issue bonds to finance their short term and long term operations and projects. When a company issue bonds, public and institute buy those bonds and get periodical payment of interest in return. When the term is over, the bonds holder give the bonds back to the institutions and get their capital plus the interest.
Stocks do not perform better than bonds always. Nowadays, the performance of bond is very stable and steady. The risk of investing in bond is much lesser than investing in stocks.
You also can have loses in bond investments. Bonds are not totally risk-free. Long term bond can have a life of decades. In those years, some uncertainty may come and as a result the investment give a negative return.
Bonds market price reacts to interest rates. It goes opposite to interest rates. When interest rates increase, the bond price falls. And when decreases, the bond price goes up. But if you hold the bond for the whole life time, you will not get any loses. You will have the face value and the interest in return.
Bond and bond mutual funds are two different things. The periodical payment of bond does not varies while the price of bond mutual fund fluctuates with the funds value.
There are some bonds which are tax free. An example of such bond can be municipal bonds though they give less return than the regular bonds.