How to invest in bonds

Meaning of Bonds

Bonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments.


Once the bond reaches maturity, the bond issuer returns the investor’s money. 


Key Terms for Understanding Bonds.

Maturity: The date on which the bond issuer returns the money lent to them by bond investors. Bonds have short, medium or long maturities.

Face value: Also known as par, face value is the amount your bond will be worth at maturity. A bond’s face value is also the basis for calculating interest payments due to bondholders. 

Price: Many if not most bonds are traded after they’ve been issued. In the market, bonds have two prices: bid and ask. The bid price is the highest amount a buyer is willing to pay for a bond, while ask price is the lowest price offered by a seller.

Yield: The rate of return on the bond.

Advantage of Investing In Bonds.

  • Diversification
    ‘Never keep all your eggs in one basket’. Diversification means spreading your investments across a broader range of companies as well as industry sectors. This helps in minimizing the risks if the company or sector fails.
  • Professional Management
    Letting the professional money managers to do the heavy lifting for you can save you the hassle of having to research and evaluate the thousands of individual bonds on the market. 
  • Lower Initial Investment Requirements
    Lower investment help assist the accessibility to a wide variety of bonds. The best policy is to work with the investment advisor who can determine your fixed-income needs, find a fund that will help meet those needs, and weigh down the risks associated with it.


How Do Bonds Work In Kenya

Upon investment in a Treasury Bond, the Investor will receive interest payment semiannually in their commercial bank account as indicated on the CDS account throughout the tenor of the Bond. On maturity, the investor will receive the last interest amount and the face value of the Bond.

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