BONDS

A bond can be purchased by an investor who is, in essence, lending money to the company or organisation that issues the bond. In return, investors will receive fixed coupon payments from the bond issuer.

Bond issuers, generally corporations or governments, are obliged to pay investors interest on a fixed basis. Payment can be made quarterly, bi-annually or annually. At the maturity date, the bond issuer is required to repay the principal to the investor, in accordance with the terms spelled out in the offer document.

Benefits of Bonds

Safer Than Shares

It is generally safer to invest in bonds than shares. If a company goes bankrupt, bondholders, as creditors, are paid ahead of equity owners. This means they stand a better chance of recovering part of their investments.

Security and Predictability

Bond issuers are obliged to pay out coupons, giving investors stable returns. Bond issuers guarantee that investors will get their money back at the end of the bond tenor.

Relatively Attractive Returns

As an asset, bonds typically pay higher interest rates than bank deposits. They provide a better investment vehicle for investors who are dissatisfied with low deposit rates but may not be willing to take on more risks in the stock market.