Types Of Bonds Commonly Issued

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A bond is issued by a company in favor of an investor willing to put up money that will finance the company's expansion bid. It will be evidenced by a bond certificate acknowledging the company's indebtedness to the investor and with a commitment to pay a certain percentage of interest which will prevail until the company will be able to pay the investor the full amount covered by the bond. Similar to stocks, there are also different types of bonds in relation to its use as a tool for investment.

Different types of bonds may be issued by the government and corporations. The different types of bonds that governments issue are considered tax free. On the other hand, the different types of bonds of corporations have corresponding taxes imposed on interest brought about by the investment to the investor.

The different types of bonds purchased as temporary investments are recorded in the books of the investor according to purchase price plus taxes, broker's fee and other charges incurred in the acquisition. On the other hand, if bond is purchased between interest dates the interest accruing to the bond should be recorded separately as a receivable and will be reported as income when the interest is received by the investor.

If the different types of bonds are purchased at a price different from its face value, it can be surmised that the bonds were acquired at a premium or discount. If the acquisition cost is higher than the face value, it was bought at a premium. Conversely, if the different types of bonds were procured lower than the face value, the difference is called a discount.

In as much as there are different types of bonds to deal with for both for public and private issues, a few of them will be cited as examples. They are the types of bonds usually traded by banks, insurance companies, pension funds, sovereign wealth funds and central banks:

1. Callable bonds are those that may be paid the issuing company before the date of maturity. Normally, the redemption price is higher than the face value of the bonds.

2. Convertible bonds give the bondholders the right to swap their bonds for additional securities being issued by the company.

3. Serial bonds have different series of maturity dates instead of only one maturity date. In relation to this, bonds that have single maturity date are often referred to as "term bonds'.

4. Flat bonds are different types of bonds that were purchased with arrears in interest payment. Any amount that will be received from the issuing company either in the form of principal or interest payment is considered as part of the recovery of investment.

There are still other different types of bonds but when one is thinking of investing in bonds these bonds are usually considered as safe investments when compared to stocks. However, the rise in the value of stocks is often higher than the interest given on bonds hence rendering the stock as risk worthy investments.