Modern financial markets have now moved on a long distance from traditional bonds and stocks. There are many complex products that are on offer for investors. However, there are some investors who are still interested in purchasing these traditional bonds. Have you ever thought about the reasons behind this? Read on to know why these investors still want to invest in bonds.
For a safer investment
Since bonds are a government entity’s note of debt, you are always assured of receiving an interest on a regular basis along with a guarantee of receiving back your principal. This is because bonds make profits through interest rates and may also make these profits before the maturity. Thus, investors do not need to put their assets on sale in order to gain profits in the form of interest. You may find many investors adding bonds to their portfolios because of these gainful features and lower involvement of risks.
For tax exemption
Many government-issued bonds offer tax exemption to investors. These government bonds are usually issued as a tool to affect the money supply to the government. Thus, people find such bonds as the safest option that offers them an additional benefit of tax exemption.
For better risk coverage
Sometimes, you may find that a bond’s market value suddenly increases before maturity. This may be based on the factor of expected inflation that further affects long-term interest rates. If inflation and interest rates are reduced, then these automatically lead to an appreciation in the value of some bonds. This is a kind of compensation given to the lender in order to cover their risk of lending. While a vice-versa situation may also be possible during an increase in interest rates, investors usually remain in a situation where risks receive sufficient coverage.
Thus, these bonds still remain a financial market’s bread and butter until investors find them as a great option for financial gains.
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