Bonds
Bonds are a type of investment instrument that allows investors to lend money to the issuer of the bond in exchange for regular interest payments and the return of the principal at the maturity of the bond. Bonds are commonly issued by governments, corporations, and other organizations to raise funds for various purposes.
When investors buy a bond, they become a creditor to the issuer and are entitled to receive regular interest payments, known as coupon payments, until the bond matures. The coupon payments are typically made at fixed intervals and at a fixed rate of interest. The principal amount of the bond is repaid to the investor at the maturity of the bond.
Bonds are generally considered less risky than stocks because they offer a fixed rate of return and a defined maturity date. The risk associated with bonds is typically related to the creditworthiness of the issuer. If the issuer defaults on the bond, the investor may lose some or all of their investment.
Bonds also offer diversification benefits to investors. They provide a way for investors to diversify their portfolio by adding fixed income investments to their holdings. Bonds also have a negative correlation with stocks, which means that they can provide a hedge against market volatility.
There are various types of bonds, including government bonds, corporate bonds, municipal bonds, and international bonds. Each type of bond has its own characteristics, including the level of risk, yield, and tax treatment.
