Bonds are issued by various organizations in order to raise money. Before you invest in the market you need to know about different kinds of bonds. Without learning about these bonds you will land up buying unsuitable bonds with incorrect maturity dates. While investing in a bond you have to consider many factors like the par value, maturity date and the coupon rate. The par value refers the cost that you will get after the bond reaches its maturity date. After the bond gets matured you can get back your initial investment.
The maturity date indicates the date when the investment bond will fully attain its value. On this date you will get back the money of your primary investment and the investment profit as well. The coupon rate indicates the gain that you get after the bond attains its maturity date. Some of the important bonds include municipal bonds, treasury bonds, corporate bonds, state and local government bonds and foreign bonds.
Municipal bonds are issued by the states, cities and various entities of the local government. They do not have any federal taxes. And if it happens to issue the bond within the state then they do not have local and state taxes. They are highly beneficial to the investors who have high tax brackets. Investing in these bonds is a good idea since they do not require you to pay for taxes.
Treasury bonds are for those investors who need income. These bonds are offered by the U.S government. They consist of treasury bills and treasury notes. The U.S government charges tax for the interest that is gained by these bonds. You may go for treasury bonds that come with maturity dates between three months to 30 years.
Corporate bonds are issued by open securities markets. They provide you with more interest rates than other bonds. Though they have high interest rates they are associated with risks. There is a higher risk involved in the bonds becoming worthless if the company happens to go out of business.
State and local government bonds are sold by the local as well as state government. They offer higher interest rates and are completely tax free. Just like the corporate bonds these bonds also have a high risk associated with them. They can get completely worthless and become bankrupt. One of the most common kinds of state and local government bonds is the Tax Free municipal bond.
Foreign bonds are a part of the mutual fund and difficult to get. This bond is associated with very high risks than the other bonds. It is best to invest in bonds that are given by the US government where you might not get a higher interest but at least there is no risk involved in investing in these bonds. Once the bond reaches its maturity you can yield good results.
Investing in bonds can gain you a lot of profit if it is done correctly. It is better to take advice from your financial advisor before investing in bonds.