How To Invest In Bonds?
One should always learn and get aware of the investments before investing his money into it. The same applies when it comes to buying bonds. Learn the details and the pros and cons regarding the bonds before you invest in them. One is bound to make mistakes and invest wrongly without having proper knowledge about these bonds.
There are three main factors that have to be noted while buying bonds. They are the par value of the bond, its coupon rate and also the maturity date.
The par value means the initial amount you have invested which you will receive from the bond on reaching the maturity date.
The maturity date in the date mentioned on the bond which states when the bond will reach its full value. You get back the money invested on the bond along with the interest earned.
But corporate, state and local governments bonds are different. They can be ‘called’ and you receive the amount you have invested along with the interest you have earned till that date. Federal bonds are not like the above bonds. They cannot be ‘called’ before maturity.
Finally coupon rate is the interest rate you will get on the maturity of the bond. This is usually mentioned as percentage and other details will help you to know the exact amount of interest. For instance when you invest $2000 as par value and which has a coupon rate of 5% will earn you an interest of $100 per annum till the date of maturity.
Bonds are not issued by banks so there are two ways by which you can buy bonds. A good broker or a brokerage firm will be of help in buying these bonds who will charge for his service as commission fee. So enquire for lowest commission rates before you buy from a broker or a brokerage firm. The next option is that you can directly buy these bonds from the government.
Nowadays buying these
bonds directly from the government is not very difficult as it was before.
A program called Treasury Direct helps you in purchasing all the bonds
you require. All your bonds will be put into one account that can be reached
by you easily for your reference. You can avoid the commission paid to
the broker or brokerage firm when you buy bonds through this method.
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