Many of us need to store our savings somewhere and it would be nice to earn extra money on this, but standard bank deposits do not promise huge interest. As an analogue, it is worth considering such a financial instrument as bonds.
The purchase of bonds is the provision of a loan to a company or the state (municipality) directly, without the participation of a bank. An investor, buying a bond, turns into a lender in relation to the company, and the latter undertakes to return the borrowed money, taking into account interest. Bond interest can be paid at different intervals, once a quarter, once every six months, once a year.
The purchase of this security is beneficial for both companies and investors, because companies receive funds at a lower interest rate than in a bank. Investors lend money at a higher interest rate.
However, this is not all, except for the yield on the bond as interest, you can get income from the price difference. Everything is easier here than with stocks. You don't need to go deep into fundamental analysis, thoroughly study companies and follow the news, just buy cheaper.
Let's consider an example: you buy a bond XXX with a par value of 1000 rubles for 900 rubles (the price does not stand still); during the period of holding the bond, for example, a year you are paid 25 rubles every 6 months; as a result, by the maturity day you have 50 rubles + your 900 rubles + 100 rubles the difference between the par value and the purchase price (the bond is redeemed at par) = 1050 rubles. The net profit will be 150 rubles.
But, do not rush to "run" to the market, before you start making money on bonds, you need to learn how to choose reliable securities, since bonds are not insured by a deposit insurance agency.
Now let's look at the pros and cons of bonds:
Pros:
- high solvency of government bonds or large companies;
- high interest rates due to the absence of intermediaries;
- compared to the stock market, bonds are susceptible to smaller price changes.
Minuses:
- you need to understand the basics of the market;
- with active trading, you can both earn and lose, because prices can both rise and go down.
So, we examined the meaning of the word bonds and the two sources of income from them (interest, price difference), now you are armed with basic knowledge and it may seem that the whole world is in your hands, but not everything is so simple and there are many details not considered here. Please read at least the basics in detail before investing in the stock market.
