Bond
What is a bond?
A bond is a loan. When you buy a bond, you’re lending money to a company or government. In return, they pay you interest and eventually repay the original amount.
How do bonds work?
A bond has a fixed term (like 5 or 10 years) and a fixed interest rate. You receive interest payments during the term, then get your money back at the end.
You can also sell a bond before it matures. The price may be higher or lower than what you paid, depending on interest rates at the time.
Why invest in bonds?
Bonds are generally less risky than shares. They provide steady income and tend to fall less sharply when markets drop. Many people hold a mix of shares and bonds to balance risk and return.
What is a bond fund?
A bond fund holds many bonds in one package. Instead of buying individual bonds (which can be difficult for retail investors), you can buy an ETF or OEIC that holds hundreds of them.
Key points about bonds
- A loan that pays interest to a company or government
- Lower risk than shares, but usually lower returns too
- Bond funds let you hold many bonds in one purchase