A Bond is a loan made by an investor to a borrower. It is called fixed-income instrument because the interest rate paid on the loan remains constant. A bond may be sold at any time. That is why they are considered as one of the safest investments in the stock market. This means that there are lesser risks involved when compared to stocks, which may drop in value. The borrower is usually a company or a government body that needs money to build a factory, to buy a fleet of ships or to complete a project. The lender is usually an individual who uses the money from this loan for his own purposes. The interest rate is the price of the loan and it is paid every year until the term of the bond comes to an end.When you buy a bond, you are lending your money to the borrower. But you do not receive interest immediately. Instead, you receive it in installments over time. The borrower is required to pay you interest every year until they pay off the entire principal amount of the loan. Bonds can be bought through banks, financial brokers or financial advisers. It can also be purchased directly from the issuer.A bond has a maturity date. That is the date when the bond reaches its maturity and the borrower has to pay off the entire principal amount of the loan. You can sell it before that date and receive the initial investment back, plus interest. If you do not sell it before then, it will automatically go back to the borrower at maturity.
