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Ontario|Investments & SecuritiesStocks, Bonds, and Mutual Funds 280 Bonds: Risks and rewards A bond is a loan. When you buy a bond, you are loaning your money to the company or government that issued the bond. The company or government promises to pay you a specific amount of interest for a specific period of time, and they also promise to repay the loan.
Investing in bonds, especially those issued by the Canadian government, provincial government or the U.S. government, is usually a fairly safe way to invest. Bonds also offer some certainty about the amount of return on your investment. You can obtain more information about the variety of bonds that are available for sale from your Investment Advisor or from a bank.
There are many different types of bonds, and each offers different benefits and risks.
- Canada Savings Bond
A common type of bond is a Canada Savings Bond. These bonds are issued by the Government of Canada and they are typically sold each fall. Canada Savings Bonds are sold in a variety of denominations. There are two kinds of Canada Savings Bonds; one kind pays interest each year, and the other kind reinvests the interest you receive or compounds the interest that is then paid out at maturity or when it is redeemed. When the bond matures, or when you redeem the bond, you receive the face value of the bond, plus any interest that is owed to you. Canada Savings Bonds can be cashed at any time by the owner at any bank in Canada. Canada Savings Bonds are considered very safe investments.
- Treasury Bill
Another common type of bond is a Treasury Bill. Treasury Bills are commonly known as T-bills. T-bills are sold at a discount, which means that you pay less than the face value of the T-bill when you buy it. Your return on the investment is the difference between the price you pay for the T-Bill and the face value of the T-Bill, which you receive when the T-bill matures.
- Corporate Bonds
Companies can also issue bonds. Like government bonds, corporate bonds are a loan that you make to a company. The company promises to pay you interest for the loan and to repay the amount of principal that you invested. There are many kinds of corporate bonds, and each offers different features and advantages. If you want to buy or sell corporate bonds you will have to do so through an Investment Advisor, who can buy or sell bonds in the bond market.
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