Bonds Definition

A bond is a debt security authorized by the issuer and held by the purchaser. The issuer is obliged to repay the principle and stipulated interest, or coupon, at a later date, termed the bond’s maturity date. In general, a bond is nothing more than a loan where the bond issuer is the borrower, the bond holder is the lender, and the bond coupon is the interest. Bonds are often issued by governmental organizations and are widely held by individuals.

For example, you may buy a Government Bond to support the construction of a sports stadium. In essence, you are lending the municipal government a small amount of money which will garner interest over a fixed period and then be repaid in full. Bonds usually have a lower rate of possible return than stocks, but are also considered to entail less risk to the investor. Depending, of course, upon the issuer of the bond. That is, a bond issued by a company with unstable financials may not be worth the paper on which it is printed.