Understanding debt securities

 

People who are considering investing their money on investment securities have basically two major options – equity and debt securities. Equity usually pertains to stock trading and share dealing. 

 

 

Debt securities on the other hand, are investment bonds. Technically, investors lend their money to debtors (which could be the government or private firms) for fixed interest after a specific period of time. 

 

 

Debt securities or bonds are generally less risky compared to equities. 

 

 

There are different types of debt securities; the most popular are government bonds issued by the government. These receive support from federal government. Examples are treasury bills, notes, and bonds. 

 

 

There are also bonds issues by municipal and local governments. The biggest advantage in investing on these bonds is that they offer tax-free interest. Aside from the government, private and publicly traded companies also issue corporate bonds.

 

 

This is one of the many ways of these sectors to raise the funds that they need. 

 

 

Corporate bonds are divided into two – investment grade bonds and non-investment grade bonds. The latter is often called junk bonds. 

 

 

When , it’s important that you understand how they work and the risk that you’re taking. Read more articles and books about them and if needed, hire independent financial advisor who can help you understand bonds.