x

Start investing with a
free Kristal.AI account.

icon

Simple. Secure.

*Error message

Different Types of Bonds: What to Know Before Investing

Updated on 23 Mar 2020

Bond investments are known for being stable, secure investments. But there are many to choose from. Let us demystify the jargon for you!

Introduction
What are the different types of bonds?
Treasury Bonds
U.S. Government Bonds
Investment-Grade Corporate Bonds
Junk Bonds
Foreign Bonds
Municipal Bonds
Mortgage-backed Bonds

Introduction

Bonds are fixed-income securities or debt instruments. When you purchase a bond, you are giving out a loan to the bond’s issuer, who pays you interest for the use of your money. Bonds constitute a popular method of long-term investment, with a guarantee for maximum returns with minimum risks in the future.

Bonds are different from stocks –as they are sold by corporations, the government or its sponsored agencies, cities, states, and other public authorities. Bonds also come in several categories – from short-term notes to bonds that take 20 to 30 years to mature.

Let us go through the different types of bonds and what you need to know before investing your money in them.

 

What are the different types of bonds?

Bonds available in the market are:

1) Treasury Bonds
2) Other U.S. Government Bonds
3) Investment-Grade Corporate Bonds
4) Junk Bonds
5) Foreign Bonds
6) Municipal bonds
7) Mortgage-backed bonds

Almost all of these bonds in the U.S. fall into one of three categories, based on the risk factor involved.

  • High Risk- These are rather high-risk bonds, sold by corporations, cities, and states. Those bonds are called Below-Investment-Grade, or Junk Bonds.
  • Medium Risk- These are the low-risk bonds sold by corporations, cities, and states; these are known as “Investment Grade.”
  • Low Risk- This category consists of the extremely safe debt of the federal government and its agencies. Ex. Treasury Bonds and US Government Bonds.

Let us now discuss these bonds one by one, so that you can have an idea as to which bond aligns with your investment situation along with the risks involved in the various bonds.

 

Treasury Bonds

Treasury bonds are U.S. government debt securities. They have a maturity range between 10 and 30 years and a fixed interest rate. They pay semiannual interest payments until maturity, at which point the face value of the bond is paid to the owner. Such bonds are generally included in the portfolio to reduce portfolio risk.

The interest payments on these bonds are exempt from both state and federal taxation. The return on most T-bonds is tied to the 5-year Treasury rate. Young investors gain from Treasury Bonds, depending on their age at the time of buying them.

 

U.S. Government Bonds

These include the US Government Savings Bonds, and Agency bonds issued by federal agencies, like Fannie Mae or the Federal National Mortgage Association and Ginnie Mae from the Government National Mortgage Association. They promise a guaranteed fixed rate of return adjustment for inflation.

Series EE Savings Bonds are free from State and Local income taxes. Series EE savings bonds are capable of paying interest up to 30 years from the date of issue.

 

Investment-Grade Corporate Bonds

These are the High-grade Bonds that receive higher ratings by the credit rating agencies, like bonds rated BAA (by Moody’s) or BBB (by Standard & Poor and Fitch) or above.

These bonds tend to be issued at lower yields than other bonds. These bonds have a lower defaulting risk. They are from companies with higher repayment capabilities.

 

Junk Bonds

These are the bonds that have been given lower Credit ratings like “BB,” “B,” “CCC,” etc. by the credit rating agencies.

They come under the Low Credit Quality category. Companies with these ratings fall under the “speculative grade”. They are more prone to changing economic conditions.

 

Foreign Bonds

A foreign bond is a bond issued in the domestic market by a foreign company or organization, as a means of raising capital. This bond is issued in the domestic market’s currency. Ex. Bulldog Bond in the UK, Samurai bond in Japan, and Kangaroo Bond in Australia.

Foreign bonds have higher yields than domestic bonds. They involve greater risks and face repayment risk. You can add foreign content to your investment portfolios with these bonds, without the added exchange rate exposure. The fixed interest payments and principal payments are in another currency.

The value of these payments when they are converted into dollars depends on the currency exchange rates.

 

Municipal Bonds

These bonds are also known as “munis”. They are issued by the U.S. states and local governments or their agencies.
They come in both the investment-grade and high-yield bond varieties. They are generally used to finance public projects such as roads, schools, airports, etc.

The interest on these bonds is tax-free. Taxable yields are higher than muni yields to compensate investors for the taxes.

 

Mortgage-backed Bonds

A mortgage bond is a bond secured by a mortgage or group of mortgages. These bonds are backed by real estate holdings.

In case of default, mortgage bondholders have a claim to the underlying property and could sell it off to compensate.
Mortgage bonds are safer than corporate bonds. They have a lower rate of return. Mortgage bonds offer investor protection because the principal is secured by a mortgage.

Investors can buy bonds in small quantities and use them to diversify their holdings. A diversified bond portfolio can provide decent yields with lower risk levels than equities. They also provide a higher income than money market funds or bank deposits.

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

cross
Change your country to India?

You’re now visiting Kristal.AI Worldwide.
To explore diverse offerings in Indian and global products, select India as your country.

ind

India

hkg

Hong Kong

sgp

Singapore

global

Other
Accredited Investor Declaration

This is offered only to Accredited and Institutional Investors as defined under the Securities and Futures Act, Chapter 289 of Singapore (“Act”), which broadly comprises of regulated financial Institutions, large corporates, high net worth individuals and sophisticated investors.

An Accredited Investor is an individual
  • Whose net personal assets exceed in value SGD 2 million (or it’s equivalent in a foreign currency) with value of his/her primary residence capped at SGD 1 million, or
  • Whose financial assets (net of any related liabilities) exceed in value SGD 1 million (or it’s equivalent in a foreign currency), or
  • Whose income in the preceding 12 months is not less than SGD 300,000 (or it’s equivalent in a foreign currency)

I agree to opt-in as Accredited Investor and will submit required documentation to confirm the same.

< Back Proceed as Private Wealth

Wealth Management Solutions
Accredited Investor Declaration

This is offered only to Accredited and Institutional Investors as defined under the Securities and Futures Act, Chapter 289 of Singapore (“Act”), which broadly comprises of regulated financial Institutions, large corporates, high net worth individuals and sophisticated investors.

An Accredited Investor is an individual
  • Whose net personal assets exceed in value SGD 2 million (or it’s equivalent in a foreign currency) with value of his/her primary residence capped at SGD 1 million, or
  • Whose financial assets (net of any related liabilities) exceed in value SGD 1 million (or it’s equivalent in a foreign currency), or
  • Whose income in the preceding 12 months is not less than SGD 300,000 (or it’s equivalent in a foreign currency)

I agree to opt-in as Accredited Investor and will submit required documentation to confirm the same.

Proceed as Private Wealth

STOCKS

Seamless investing enabled by easy and instant access to a wide range of cross border stocks of acclaimed and high potential companies, handpicked by our expert investment committee.

For investors who desire enhanced returns while co-owning shares of global companies.

*The range of stocks will be made accessible, post login

OVERVIEW

Only the best

A range top performing and high potential stocks carefully selected by our seasoned investment committee

Instant Access

Wide range of global stocks made easily accessible with a single click

Diversity

Companies from varied sectors and fields made available for investment enabling clients to diversify investments and effectively mitigate risks

Innovative

High potential companies leading with disruptive technologies made available to clients enabling them to future proof their investments

THEMATIC STRATEGIES

Enabling clients to invest in trending themes like FAMANGThe FAMANG Kristal invests in Facebook, Apple, Amazon, Netflix and Alphabet’s Google stocks. Assets are carefully chosen by an algorithm in order to deliver a superior returns based on past performance. The strategy is rebalanced every quarter., TECHGlobal Technology ETFs is a genetic algorithmic strategy focussed specifically on the Technology sector., ESGProvides exposure to higher rated environmental, social, and governance (ESG) companies while accessing large- and mid-cap stocks in Europe, Australia, Asia and the Far East., etc. with a single click or just create your own thematic basket.

Future-proof your portfolio and capture emerging investment themes.

*The range of Thematic Strategies will be made accessible, post login

OVERVIEW

Explore and Identify

Select from a range of expertly designed trending and diverse themes

Efficient Execution

Enabling easy exposure to your preferred themes without the hassle and costs of individual security selection and execution

Only the Best

A ready-made collection of Kristals that derive the best of the specific asset class or theme

Unique Mix

An optimised blend of ETFs and individual counters, enhancing efficiency and profitability

Contact our Relationship Manager
ALTERNATIVE INVESTMENTS

Diversify your portfolio with exclusive Private Equity, Pre-IPO deals, VC Funds & other investments like Bitcoin, Gold, Hedge Funds and many more.

Kristal fractionalizes difficult-to-access deals and opportunities.

View Alternative Investments

OVERVIEW

Instant Access

A wide range of alternative asset classes such as Gold, Bitcoins, Hedge Funds and many more; readily made available

Risk Management

Enables investments in diversified assets hence spreading the risk

Easy Tracking

Enables you to get a consolidated view of investments in all assets at one place, hence facilitating easy monitoring and tracking

Exclusive Deals

Access to exclusive Venture Capitalist, Startup as well as pre-IPO investment opportunities

Low Investment Tickets

Facilitates fractionalization of investments in deals

Contact our Relationship Manager
FUNDS PLATFORM

Professionally managed funds with active investment strategies, screened for you by our investment committee to diversify your portfolio.

Enabling clients to access exclusive investment strategies.

View Funds

View Funds

OVERVIEW

Access

Provides Access to Professional Fund Managers

Low Investment Tickets

Facilitates fractionalization of investments in funds

Diversity

A wide spectrum of investment strategies ranging from Arbitrage to Credit to Hedge Funds and many more

Fees

No additional costs are charged by Kristal.AI

Exceptional Performance

Funds with an impressive track record and potential for high profitability

Leverage

Benefits from insights of the expert selection and advisory team

Easy Management

No time consuming management of portfolios

Contact our Relationship Manager
TAILOR-MADE PRODUCTS

Customize products based on your market outlook and specific needs across equities, bonds, gold and more.

For investors looking to enhance portfolio yield based on market views.

*The range of Tailor Made Products will be made accessible, post login

OVERVIEW

Enhanced Earnings

Structures with potential to enhance portfolio yield based on market movements

Customization

Product features can be designed to articulate investor views

Fees

A flat and transparent fee structure like nowhere else

One-Click Access

A single feature ‘Ideas’ enables you to access recently launched and trending market opportunities

Contact our Relationship Manager
BUILD YOUR OWN KRISTAL

Can’t find what you are looking for? Create your own exclusive investment strategy with risk management & periodic reporting.

For seasoned investors who prefer to design their own portfolio.

OVERVIEW

Empowered Investing

Enables clients to create their own custom portfolio based on their unique needs

Unlimited Choice

Access to all possible exchange traded assets

Flexible Management

Flexibility in delegating the portfolio management role to us or actively taking up the day to day investment decisions, in your custom Kristal

Custom Fee Structure

A simple, transparent and a customized fee structure

Access to Expertise

Custom performance reporting as well as advisory support

Contact our Relationship Manager