Bonds are a type of security. Today they are one of the tools for increasing your own capital. In some cases, the yield on bonds may exceed those obtained on shares or deposits.
What is the value of bonds
A bond is a debt security. It is issued by companies or the government to finance certain investments or operating costs. Thus, the buyer of the bond provides a kind of loan to its issuer. In return, he gets the right to receive back the entire amount spent on the purchase of the bond, as well as the agreed profit.
Bonds are classified as low-risk securities compared to stocks. Sometimes they are even more profitable. This is due to the fact that the return on shares largely depends on the dynamics of the company's financial indicators (and it is far from always predictable), as well as the situation on world markets. And bonds often contain an initially fixed interest rate, i.e. allow to exclude the economic group of risks as much as possible and make the yield on securities independent of the company's financial results.
But investing in bonds can also lose your own funds, because the real result of such investments is not always unambiguously positive. Also, the resulting earnings on shares can be seriously depreciated under the influence of inflation. At the same time, you can get not only a lower, but also a much higher yield on shares than on bonds. It is believed that it is optimal to combine bonds and stocks in one investment portfolio.
What can you do with bonds
The key use of bonds is investment. The yield on bonds depends on their type. So, on bonds with a fixed rate, income is paid in the form of an agreed and fixed interest. When the bond expires, you can sell it and earn additional income. Interest can be paid not only at the end, but also monthly, quarterly, annually.
There are also floating rate bonds. Their profitability is tied to certain financial indicators, for example, to the refinancing rate. There are also mixed bonds that combine these two types.
The yield on discount bonds is formed by the difference between the lower purchase price and the higher sales price.
Another possible use of bonds could be securing a bank loan. Also, bonds, like other securities, can act as a contribution to the authorized capital of a company.
