How to Buy Par Bonds
Bonds are like certificates you get, when you deposit money at a bank. These certificates ensure a fixed annual return till the completion the bond lifetime. But bonds are not issued by banks, they are managed by government organizations mostly and sometimes private financial firms. However unlike bank deposits, bonds can be traded in the finance market.
There are three types of bonds; par bonds, discount bonds, premium bonds. Par bonds fetch the exact amount of money, i.e. amount equal to 100 percent of their par value.
Instructions
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1
Research on different types of bonds and figure out which one is the best suited for your needs. Discount bonds are traded at a lower value than their par value where as premium bonds have are more worth than their par value. Due to this, higher interest rate or coupon rate is accredited with premium bonds.
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2
This makes premium bonds the most profitable form of investment but with a high degree of risk. Buying par bonds is a good way to invest money safely, keep records, and avoid complex tax calculations. Moreover, calculating the bond value is also easiest in the case of par bonds.
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Par bands offer a rate of return which is guaranteed to earn you profits. However, these days inflation is also rampant so make sure the rate of return of the par bond is higher than the inflation rate of your country, else you will be losing instead of making money on the bonds.
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Par bonds last from a year to a period of 30 years. The longer the period, the higher the rate of interest or coupon rate it will generate. Identify if you will need a large sum of money in the near future, and if you do, plan out your bonding plan according to it.
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Bonds are different from bank deposits as you cannot draw the earned money or interest amount monthly or quarterly. You can only take cash the bond once it has mature, that is completed its period. If you break a bond prematurely, you will lose almost all profit gained over the years and will be left with only the principal amount.
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Hire the services of a broker and purchase par bonds through him. It is better to pay a finance guy some money, than to make bad investing decisions.
