If you're new to the world of investments, you may be surprised by the many types of bonds available. Bonds are essentially loans. You, as the investor, are lending the entity that is issuing the bonds an amount of money (the principal of the bond) for a period of time in exchange for interest paid out to you in predetermined increments. In the end, the bond will mature (at a predetermined time), and you will receive the principal amount you invested paid out to you.
However, not all bonds are alike. You will want to understand the following types of bonds before you invest.
Agency Bonds
Agency bonds are issued by agencies of the US government to fund government projects. Fannie Mae and Freddie Mac and prime examples of agencies who issue bonds to finance lending. Sallie Mae is another agency that issues bonds.
Corporate Bonds
Corporate bonds are issued by corporations to finance corporate ventures and expansion.
Fixed Rate Bonds
When you think of bonds, you're probably thinking of a fixed rate bond. This is a bond with a fixed coupon, or interest rate. The percentage of interest paid out will remain constant throughout the duration of the bond.
Floating Rate Notes
Floating rate notes have a variable coupon (interest rate) that is linked to an index, such as the Consumer Price Index. These bonds pay out varying rates of interest as the duration of the bond passes.
Municipal Bonds
Municipal bonds are issued by a city or branch of local government. The money is used to fund local government projects, such as infrastructure. Sometimes municipal bonds operate as tax-free bonds due to special state requirements (with no taxes being levied on the interest paid out).
Zero Coupon Bonds
Zero coupon bonds don't actually earn you any interest. Instead the value of the principal changes over time, so that at the time of maturation you make an additional lump sum of money when the principal is repaid.
 | A mutual fund's prospectus describes the fund's objectives and the securities it invests in. The name of the mutual fund can be revealing, but you should check out the objectives and strategy to find out its goals. |
 | Understanding the basics behind investing in bonds will help you decide whether this type of investment is right for you. Bonds are investment securities that represent debt obligations between the bonds' issuers, who are the borrowers, and investors like you, who are the lenders. In other words, bonds are essentially the IOUs of the corporate and government financial worlds. |
 | Bond investment is an essential part of building a well-balanced portfolio. However, don't just blindly invest in bonds; determine your investment strategy before you begin building your portfolio. |
When an investor, financial institution, mutual fund or foreign Government wants to protect itself from inflation, it may enter into one or more of several financial vehicles designed to protect their financial interests from inflation. |
There are certain things you must understand about bonds before you start investing in them. Not understanding these things may cause you to purchase the wrong bonds, at the wrong maturity date. Think of a bond as an I.O.U. |
