Investment Management Related To Bonds

Filed Under Investment Management.

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Investment Management is very important for any individual who values money. A person, who is interested in investing in bonds, return-on-investmentmust have thorough knowledge of the interest rates which is the key feature of bonds, and once we know them properly it will help us to invest our money wisely. The interest rate environment governs the value of the bond investment in present as well as in the future. Anyone who wants to invest money in bonds will need to know these basics.

Concept Of The Coupon Rate

Let us understand what is a coupon rate? The bonds are as fixed income securities that pay a set coupon rate on the invested amount. The periodic interest payments on the bonds are calculated by the coupon rate on an issue and as an investor, we must know the coupon rate. The coupon rate is affected by two things generally.

The first is the issuer’s credit quality.

The second is the issue’s duration.

What is Yield in Bond investment?

The yield on a bond fluctuates due to the changing supply and demand in the trading. It fluctuates if there are changes in current interest rates, and so we can state that a yield on bond moves in exactly the opposite direction to the price in the investment market. As a bond investor we must know the yield on a particular bond that we are investing. The proper knowledge will help us to invest wisely.

Concept Of Interest Rate Sensitivity

As an investor, I will be interested to know how much my bond holdings are sensitive to any change in the interest-rate, because bond prices change due to the fluctuations in the interest rates and directly affect the value of the investment. It is a fact that longer term bonds are more sensitive to rate increases because in such a case the investor is required to block his money for a longer period at a much lower coupon rate in the bond investment market. As a bond investor I should have the adequate knowledge of the available interest rate and proceed accordingly. An investor has to keep oneself well informed about the various aspects of investment management of bonds and only then will he benefit from the knowledge. In comparison to this, the shorter term bonds will be less affected by the increase in rates as investors demand a higher yield and as a result the shorter-term bond prices will not have much downward pressure on them.

As an investor it really helps to know these basics. The investment market needs to be studied carefully if we wish to see our money grow over the years and a carefully thought out financial decision will help us to secure our future. Everyone realizes the value of money and how important it is to save in these times and investing in bonds can be a very good option. Bonds are a safe investment option for most investors as they are able to invest their money safely.

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