Want to start investing in bonds. Here are the basics of bonds, explained in terms you can easily understand.
If you’re new to investing, bonds may seem a little intimidating and difficult to understand. But really, they’re not that complicated! We put together this simple bonds explained guide for you.
Large organizations like governments sometimes need to borrow money (take on debt). One way for them to collect the money is to issue bonds.
You lend your money to the organization, and at an agreed-upon date in the future, they’ll pay you back with interest. Once you have loaned the money you will get a piece of paper that stipulates how much was lent, what the agreed-upon interest rate is, how often interest will be paid, and how long the term of the loan will be.
In a nutshell, bonds are basically IOUs.
They are less risky than stocks, and are a great way to diversify your investment portfolio.
There are six types of bonds you can buy, all defined by who's selling the debt.
The most important 3 things to know when buying bonds is the par value, the coupon rate, and the maturity date.
You can buy a bond at issuance, through a public offer.
You can also buy a bond from the secondary market (after issuance), as long as there is a seller for it. This can be done through the Singapore Exchange (SGX).