Bonds arrange for an income stream and supports in diversifying a stock portfolio. A bond's total return consists of income as well as capital appreciation or loss. Bond prices changes with the changes in interest rates. Bonds are also subject to credit risk.
Investors can purchase individual bonds and bond mutual funds. Holding bonds till it reaches maturity level reduces market risk.
Investing in bond mutual funds lets individuals to diversify among many different bond issues, thereby reducing credit risk. Interest-rate-risk can be lessened down by investing in shorter-term bonds.
Before investing in bonds, the investors should carefully read the prospectus of the issue with specific consideration on the following:
- Financial Information and Credit Rating Report of the Issuer
- Investment details
- Application and allotment instructions