A complete guide on how to buy bonds and how to sell bonds online.We answer your question on when to buy bonds and when to sell, where to buy a bond
Bond investing is currently the most reliable and secure mode of investment. If you are not very much aware of bonds and investing in bonds, then we recommend you to read our detailed articles on bond types, bond basics and step by step bond investing guide for beginners .
In this article today, we will be focusing on how to buy and sell bonds. We will not only be covering the general methods of buying and selling bonds but also points to consider and think about before either buying or selling bonds.
What Should You Think About Before Buying Bonds?
With the stock market and other methods of investment becoming highly risky and unreliable in recent times, all types of investors are now trying their hands on bond investing.
The main reason for the huge popularity of bond investing is because it involves comparatively low risk than other investment methods and in almost all the cases, the principal amount that you spend in buying bonds are safe and repaid to you along with an annual interest once the term of the bond is over.
However, there are more points that you should consider and know well before you make an investment in bonds. And below are some of the key points you should consider before buying bonds.Follow this successful bond investment strategies.
- Bond Investment Grade:
The Bond Investment Grade is a score assigned to all the bonds out there by authorized agencies. The bond investment grade is assigned after assessing the potential of the bond and the bond issuer and depicts how likely and reputed the bond issuer is when it comes to the interest (coupon) payment and also the repayment of the principal face value amount once the bond maturity period is completed.
Bonds with investment grades of “BB” and above are considered as safe whereas bonds with investment grades of “B” and lower and considered risky. Safe bond investment may offer low annual interest rate when compared to risky bonds and this is why many new bond investors tend to buy risky bonds and end up risking not only their interest payment but their principal amount as well.
- Research Beyond the Investment Grade:
Even though the Bond Investment Grade is a very impressive metric to analyze the worthiness of a bond and bond issuer, it may not be accurate or valid at all times.
For example, if an organization faces a sudden decline in business or revenue due to political, economic or any other reasons, the authorities responsible for assigning bond investment-grade scores won’t be able to pick the downfall and may be late in updating their investment grade.
How to Buy Bonds?
If you are interested in purchasing corporate bonds that are issued by organizations, then you will have to search for organizations that are issuing bonds. Fill out the application form to buy the bonds and submit the form along with an application fee and required documents. You can either receive the bond documents either in physical documentation format or else give your DEMAT account details while filing the application for buying the bonds and get the bonds credited to your DEMAT account.
When it comes to government bonds, these bonds are not issued like corporate bonds and you cannot directly purchase them yourself. Instead, there are authorized distributors, mainly centralized banks, responsible for selling of government-issued bonds. In order to purchase a government bond, you will have to visit the authorized distributor and complete the filing procedures to get the bonds credited to your name.
With the help of brokers and other firms specializing in buying or selling bonds, you can purchase both new bonds that are issued by organizations or governments and also bonds that were issued earlier and are now in the secondary market. However, a brokerage fee will be issued in such case.
There are mutual fund solutions as well that helps you invest an amount in the mutual fund wherein your fund collectively with the funds of others will be investing in buying bonds. However, when you invest in mutual funds, you will not have any direct control over the buying or selling of bonds. You will be credited with the profit from the bond and the mutual fund firm will take a percentage share of it. In case of a loss from the bonds, you will have to bear the loss as well.
What to think before selling bonds?
Now that we have taken you through the points to think about buying bonds and an outline of how to buy bonds, the next step is to provide you information on how to sell bonds.
However, before taking you through the steps involved in the selling of bonds, below are some of the information that you should be aware of, before selling bonds.
What happens if I sell my bond before the maturity date?
The maturity date of a bond is the date after which the entire principal amount that you paid while purchasing the bond, will be returned back to you. Once the maturity date is reached, irrespective of the rise or fall in the current bond value, you will be paid your complete principal amount.
However, people who buy bonds with longer maturity period, say of 10-15 years, often choose to sell off the bond before reaching the maturity date, simply because the maturity period is too long.
When to Sell Bonds?
If you are having a short-term bond, then it is a good advice to wait until the maturity date of the bond, generally 1 or 2 years.
Instead, if you are having a long-term bond and if you are searching for signs that show the time to sell your bonds, then below are some points that you should consider.
- If you see that the current interest rates of bonds are increasing and is showing no sign of descent, then it is probably a good idea to sell off bonds when the increasing trend in interest begins. Because, as interest rates increase, the value of bonds decreases and it will affect the face value of your bonds as well. So later when the interest rates are at its peak, you will receive a far less value for the bonds that you own than you currently do.
- If you see a sudden decrease in the revenue or profits of the organization whose bonds you own, and if trade analysts expect the downfall trend of the organization to continue, then it is probably a safe move to sell off your bonds in the organization so as to avoid facing any risks on your interest or principal amount.
How to Sell Bonds?
Similar to how bonds are bought, bonds can also be sold through brokers. Either these broker agencies will themselves buy the bonds that you own or else they will help you get in touch with people who are interested to buy the bonds that you own.
As in any case, once you sell bonds through brokers, they will take a percentage of the money that you get through the sale as commission and this percentage varies depending on the broker.
One important point to note as repetitively mentioned in this article is that when you choose to sell your existing bonds before the maturity date, there is no guarantee that you will get back the entire principal amount that you spent while purchasing the bonds and this is entirely dependent on the current value of the bond and the interest rate.
Did you find the above article on how to buy and sell bonds informative?
Moreover, in case you have any doubts on how to buy bonds and how to sell bonds, do leave a comment below raising your question and we will answer them.