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Benefits Of Investing In Bonds Essay

739 words - 3 pages

Benefits of Investing in Bonds
Investors buy bonds for a variety of reasons. First, it is because it can yield enhancement, investing in bonds may improve their return than sitting on cash. When compared to other investments, such as saving accounts in banks, bonds pay a much higher rate of interest. So, instead of keeping money in a bank, people can invest in bonds and earn a good interest rate.
Second, investing in bonds, investors can earn stable interest income. Bonds deliver stable and predictable coupons as streams of income. Bonds also offer predictable repayment of principal at maturity.
On the other hand, investing in bond also is a good risk diversification tool. It is because ...view middle of the document...

• The higher the rating, the lesser the risk, the lower the yield of the bond
Capital Tier
• Represents the seniority of claims in the case of a default event.

Risk Factors
Interest rate risk is refers to the potential loss in the bond value as a result of a rise in term interest rate. However, there is no impact if planning to hold bond to maturity.
Credit risk is refers to the potential loss in the bond value as a result of either a downgrade of the issuer's credit rating or the market's perception of the issuer's credit worthiness and its ability to meet its financial obligations.
Default risk is refers to the potential total loss in the bond value as a result of the issuer going bankrupt.
Liquidity risk is refers to investors may have difficulty finding a buyer when they want to sell and may be forced to sell at a significant discount to market value.

Financial Planning

First, investors can trade bonds via HSBC Internet Banking. HSBC have the
one-stop online platform offers bond IPO subscription and secondary market
trading services. On the other hand, HSBC lets investors invest in a wide range
of bonds with a minimum investment amount of...

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