If you have a bit of money to spare and you want to invest it, you will need to be looking for an investment that will at least guarantee your money back and also pay you some interest. This is where coupon bonds come into play.
Most business ventures are risky, there never is a firm guarantee that you will get anything back. You may make huge profits and you may also find yourself making huge losses and ending up in debts.
It would be very disappointing to end up in debt after venturing into a “good” deal that goes bust in time. This is why most people will go for coupon bonds.
Coupon bonds are offered by a country’s central bank and are bought at a discounted value from its face value. Let’s say a five thousand shillings bond could have a 10 percent discount and be bought at four thousand nine hundred shillings. Over a period of time, the interest accrued is paid to you annually or twice yearly. All you do is present the bond and the interest is paid. Then at its maturity, you will get the full face value of the bond paid to you.
Some bonds interest is paid at maturity together with the face value. This type of payment will attract a higher interest rate. If at some point during the life of the bond you wish to cash it, the option is also available by trading in the stock exchange. You many loose the interest accrued, but you will be paid the full face value of the coupon bond.
There are no set regulations on the rates of interest offered in coupon bonds and the time that it takes to mature. This could range from one to forty years and the interest rate is normally lower if you will be withdrawing it more often rather than wait till maturity.
Coupon bonds are a great long term investment plan which can be used for college for a child or other long term investing goals. There are various types of coupon bonds, this includes;
* Current coupon bonds: a bond with a coupon that is 0.5% lower or above the current market rates.
* Full coupon bond: this type of bond is offered at a slightly higher or slightly lower rate than the market value, meaning the coupon bond sells at around its face value.
* Registered coupon bond: this bond has its principle but not interest registered. This means that the interest can be paid to anyone, but the principal at maturity can only paid to the person it was registered to when it was bought.
Coupon bonds are being phased out in favor of registered bonds, which are also known as bearer bonds, but they still remain the most sure way to make a long term investment which gives someone a guaranteed return of the initial sum invested.
It’s flexible in terms of the time you can keep it because you will also be able to cash it in the stock market. Coupon bonds pay you an annual interest so you can be able to budget. It’s only a matter of presenting it to a paying agent who could also be your normal bank and receive the money.
There are no complications or waiting periods. It may not be as exciting as stock trading and the interest rates are low comparing but coupon bonds are a very safe bet.
