Overview

About

Overview

What are the advantages?

Predictability – A bond, because it is a loan, carries an interest rate and as a contract to the borrower the interest is paid in a fixed sum or index linked sum on specific dates each year. As the money gets paid on a specific date you can build a portfolio as you know precisely when income comes in. As long as the issuing company is fine you know exactly how much you’ll get.

Is it risky?

I suppose you could say, riskier than what? It’s not riskier than equity, so if there was a problem and the company was wound up, bond holders take preference over equities holders in event of pay-out so it’s obviously a lower risk. Make sure you look at the different instruments as different bonds carry different risks.

Are there pitfalls to look out for?

You need to know what you are buying...are you buying a regulated corporate bond? These are traded on a regulated stock exchange, namely the London Stock Exchange on a special platform set up for investors so that they have transparency, therefore you can see the price and you have insurance of execution if you want to trade them during market hours. It is called ORB (The Order Book for Retail Bonds) Launched in 2010 it is an electronic trading platform offering investors a cost effective, transparent and efficient mechanism. Remember though retail bonds don’t have financial services compensation scheme attached to them so it is important to read all documents carefully. New issues can be found on the website www.londonstockexchange.com as well as on our New Issues section

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