Bonds

A bond is a fixed income instrument that represents a loan made by a bond investor (you) to a borrower (bond issuer).

A bond is a debt issued by a government or by a private corporation. When you invest in a bond, you are effectively lending your money to the issuer. In return, the bond issuer promises to pay you the agreed coupon or interest and the face value of the bond upon maturity. When investing in a bond, the primary consideration is the issuer's ability to pay back its obligations. Issuers with lower credit standing tend to pay higher interest rates. If you sell your bond before the maturity date, you can either enjoy capital gains or suffer capital losses depending on the market value of the bond at the time of sale. Prevailing interest rates highly affect bond prices. Generally, bonds are suited for investors who are looking for investments that will generate regular cash flow and moderate returns.

1. Coupons

These are fixed income payments by the Issuer to the bond investor on an annual, semi-annual, or quarterly basis.

• As a bond investor, you receive periodic interest payments called coupon payments.
• Once the bond matures, your principal will also be returned to you.
• If a bond is held until its maturity, the investment return of the bond investor will not be affected by bond price fluctuations.

A bond is a fixed income instrument that represents a loan made by a bond investor (you) to a borrower (bond issuer).

A bond is a debt issued by a government or by a private corporation. When you invest in a bond, you are effectively lending your money to the issuer. In return, the bond issuer promises to pay you the agreed coupon or interest and the face value of the bond upon maturity. When investing in a bond, the primary consideration is the issuer's ability to pay back its obligations. Issuers with lower credit standing tend to pay higher interest rates. If you sell your bond before the maturity date, you can either enjoy capital gains or suffer capital losses depending on the market value of the bond at the time of sale. Prevailing interest rates highly affect bond prices. Generally, bonds are suited for investors who are looking for investments that will generate regular cash flow and moderate returns.

2. Price appreciation

Bonds can be sold in the secondary market prior to their maturity date, and investors may realize capital gains if the bond is sold at a higher selling price versus the price it was bought.

Government Bonds

Debt securities issued by the government.

Corporate Bonds

Debt securities issued by a corporation.

Bond Funds

Collective investment schemes which are invested primarily in government and corporate bonds or fixed income securities and are professionally managed by fund managers.

a. Credit or Default Risk may arise from a borrower's failure to pay the principal and/or the interest.

b. Interest Rate Risk is a possibility of loss due to changes in interest rates that affect bond prices.

c. Reinvestment Risk is the risk associated with the possibility of having lower returns when maturing funds or interest earnings are reinvested.

d. Liquidity Risk is the possibillity of losses due to inability to sell or convert the bond into cash immediately, or in instances where conversion to cash is possible but at a loss.

• Invest directly in individual securities issued by a government or corporation. The investor is the one who assesses and makes the decision on which security to purchase.

• Buy units/shares of a collective investment scheme or a pooled fund thereby indirectly investing in securities issued by a government or corporation. In this arrangement, various investors/participants pool their money and entrust the same to a fund manager, who will be the one to select and buy the underlying securities as allowed by the pooled fund's objective and policies.

To know more about bonds and applicable fees, please visit the Fixed Income Securities page.

Fixed Income Securities