Bonds

Bonds, also known as Fixed Income Securities, is a debt instrument that may or may not give you fixed interest payments (coupons). Most bonds pay interest on a annually basis and the full principle on maturity.

Some variants are:

• Zero-coupon bonds
  Those bonds that does not give fixed interest payments but are sold at deep discount of the maturity (par / face) value. In other words, you don't get the fixed interest payment but do get them at maturity as these interest are paid in terms of the discount, and you only get them at the end of the maturity.
• High Yield / Junk Bonds
  These are in fact from the name itself, junk bonds. They do not provide any security in default payment and the company selling such bonds gives high interest as their credit rating is lower than BBB in general.

Please be aware that Bonds have certain risks and are never "risk-free" as anyone would claim. If anyone ever tries to convince you that that it's "risk-free", make it a point to get their name card and make them write that term down into the contract itself. If they refused to, especially in writing that term down, it's probably a scam. Try asking them, which line in the contract says that it's "risk-free"? Just remind yourself of the lehman brothers' case and be wary of such things.

Some Risks of Bonds includes:

• Interest Rate Risk (when interest rate increase, bond's market price will drop and the inverse if true)
• Reinvestment Risk (you can't be sure if you can reinvest the interest payment in a interest rate of something similar)
• Timing / Call Risk (if you bond has a call option that the issuer can redeem your bond before maturity, you'll lose all future income when the market interest rate drops)
• Default Risk (the issuer may go bankrupt like Lehmen Brothers, or may be unable to pay off your interest / the maturity value on a temporary or permanent basis.)
• Liquidity Risk (If the market lacks people that are willing to buy over your bond readily, you may face such problem if you needs the money and is unable to sell your bond.)
• etc...