Investor education

What Is a Bond

A bond is a loan you make to a borrower, usually a government or company, in return for scheduled interest payments and the repayment of the amount borrowed at a set date. Understanding the parts of a bond helps you read product documents and set your own expectations. This guide explains the core ideas in plain terms and points to the checks you should run before committing money.

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The core parts of a bond

Every bond has a small set of features that define how it behaves. The issuer is the borrower, the face value (or par) is the amount repaid at the end, the coupon is the interest rate paid, and the maturity is the date the loan is due. Reading these terms first gives you a framework for any bond you research.

Issuer: the government or company borrowing the money.
Coupon: the interest rate, often paid twice a year.
Maturity: the date the face value is scheduled to be repaid.
Face value: the amount you expect back at maturity.

How bonds can fit a portfolio

Investors often hold bonds for scheduled income and to balance more volatile holdings. The way a bond behaves depends on the issuer's ability to pay, the coupon, the time to maturity and wider interest rate movements. None of these guarantee an outcome, so it helps to read how each bond or bond fund describes its objectives and holdings before you decide.

Bonds can provide scheduled interest between purchase and maturity.
Prices can move before maturity as interest rates change.
You can hold individual bonds or pooled bond funds and ETFs.
Match any holding to your own time horizon and goals.

Key risks to understand

Bonds are not free of risk. Credit risk is the chance the issuer cannot pay. Interest rate risk means bond prices can fall when rates rise. Inflation can erode the buying power of fixed payments. Reviewing these risks against your own situation matters more than any general description, and product documents set out the specific terms.

Credit risk: the issuer may miss payments or default.
Interest rate risk: prices and rates tend to move in opposite directions.
Liquidity risk: some bonds are harder to sell quickly.
Always confirm terms in the current offering documents.

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FAQ

Is a bond the same as a stock?

No. A bond is a loan to an issuer that usually pays interest and repays a set amount at maturity. A stock is part ownership of a company. They carry different risks and behave differently, so review each on its own terms.

Can I lose money on a bond?

Yes. An issuer could default, and a bond's price can fall before maturity if interest rates rise or the issuer's outlook weakens. Read the specific bond documents and consider how the holding fits your plan.

How do I start researching bonds?

Begin with the glossary to confirm terms, then read the offering or fund documents for any bond you consider. Confirm the issuer, coupon, maturity and any fees directly with your chosen provider before deciding.