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Financial Terms and Glossary

Definition of Bonds

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Bonds are debt issued by corporations or governments or other institutions. Bonds typically pay a given interest rate over a specific time period. The original principal is repaid by the bond issuer at the end of the period, or when the bond matures.

There are all types of bonds available. Buying and selling bonds is often more complicated than buying and selling a stock or a mutual fund. It's good to have an understanding of how this works or, maybe better, to have your financial advisor or broker handle this for you.

Some government bonds or municipal bonds offer significant tax breaks over corporate bonds, however, this may or may not be to an investors advantage. Often corporate bonds pay at a higher interest rate that more than offsets the tax advantage.

Bonds often come with varying risks. Some corporations will issue bonds at a very high interest rate to raise capital. These bonds will usually have a higher risk associated with the higher interest rate.

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