Before starting the investment you must have knowledge about the bonds in which you are investing. If you have done the home work well you might purchase the wrong bond at wrong maturity date. So it is very necessary to gather all the essential information before initiating.
There are three crucial things associated with bonds that must be measured before buying a bond. These are maturity date, par value and coupon rate.
The par value is that amount of money which you will be getting back when the bonds mature. It means the money you will earn on the initial investment which you have made for certain amount of time period.
The maturity date refers to that date on which you will get the full value of the bond. On this date you will get back your initial investment in addition with the interest earned on that amount.
Calling a bond means that, before the bond reaches to the maturity date you can in-cash it. Corporate bonds and state and local Government bonds allow you to call the bond before the maturity time but federal bonds do not let you call the bond before the maturity date.
The coupon rate is the rate of interest which you will earn on your initial investment when the bond reaches to its maturity date. This rate is written in the form of percentage on the investment amount. For instance on if the coupon rate is 5% and the initial investment is $2000, you will earn 5% of $2000 i.e. $100 as interest when the bond reaches it maturity date.
As bonds are not issued by the banks so many people do not know how to deal with bonds. There are two methods by which it can be done.
The one method is to buy bonds through broker or brokerage house. If you are intended to purchase the bond through the brokers you are more likely to find that broker which charges you less commission fees.
The next method is to purchase the bond directly from the government which is a difficult method. Treasury direct, is a program that allow you to buy the bonds and keep record of all your bonds in an account, which you can access easily. In this way you save yourself in paying the commission to the brokers.
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