Bonds are debt instruments issued by governments, corporations, or other institutions to raise funds from investors. When you buy a bond, you are essentially lending money to the bond issuer, and in return, the issuer promises to repay the principal at maturity and pay interest periodically over a period of time.
There are several important points regarding bonds:
1. **Principal**: The amount of money lent by the investor to the bond issuer, which must be repaid when the bond matures.
2. **Coupon**: Interest paid by the bond issuer to the bondholder periodically, usually every 6 months or a year.
3. **Maturity Date**: The date on which the principal debt must be repaid by the bond issuer.
4. **Bond Issuer**: Can be a government (government bonds) or a company (corporate bonds).
Bonds are considered a safer investment instrument than stocks, especially government bonds, because they usually have a lower risk of default. However, the returns generated from bonds are generally lower than those from stocks.