Investment bonds are financial instruments that can be used by government entities or private companies, with the aim of obtaining funds from financial markets, that is, the issuer of the bond delivers a security in the name of the bearer where it agrees to return the capital together with the interests in a certain time. These interests can be fixed or variable, that will depend on the agreement agreed between the parties.
This type of bonds that if well used by the sector, public and private, other entities and supranational institutions also make use of them, as in the case of the European Investment Bank, Andean Development Corporation, among others. When an institution or company makes this type of investment, most of the time it is to do business on a stock exchange and thus obtain greater funds from the financial market, which can be local or international.
In the global financial arena, there are hundreds of types of investment bonds, but the main ones are:
Exchangeable bond: this type of investment is when a bond can be exchanged for shares of an existing company, without a capital increase or share reductions.
Zero coupon bond: this type of securities is sometimes very unprofitable, since the bearer does not pay interest during his life, but at the moment the coupon is returned as part of compensation, its price is lower than the value normal.
Bonds state: securities are government bonds issued by the State to a term that can be two to five years or when so desired carrier.
Cash bonds: securities issued by a company, which undertakes to repay the agreed loan upon maturity. The resources obtained are destined to the treasury of the company to cover its financial needs.
Junk bonds: investing in this type of bond carries a high risk to the investor, since they are of a very low rating but offer a high yield.
Like any financial instrument, bonds have their risks, among which are:
Market risk: This can cause the price of the bond to vary depending on the interests of the market.
Inflation risk: when the bond matures, it is possible that the investment together with the interests will have a value well below the initial one.
Within the world economy, bonds are the safest instrument in the market, since when buying a bond you are aware of how much the bond will pay and how often they will pay interest, which can be monthly, quarterly, semi-annually or annually.
