An investment bond gives you the potential for medium to long term growth on your money, so over five to 10 years or more, along with fund management expertise. They are a form of debt and one way a company raises funds. Bonds can also be issued by the government as an additional way to raise money.
A bond can be thought of as an IOU between the lender and the borrower, that includes details of the loan and its payments. When someone lends to a government or company in the form of a bond they’ll receive a fixed payment for the established number of years that the bond is in issue.
At the end of the fixed period, say five or 10 years, the whole amount or principle will be paid back. Bonds differ from stocks because bond holders get paid before shareholders if the company is liquidated and there’s usually a predetermined period of time. Another word for the fixed payment is a coupon.
So if you’re looking to invest in bonds you should keep an eye out for the coupon rates and the payment dates.
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