The definition of bond refers to the debt securities issued by the debtor to the creditors (investors) at a fixed interest rate, and the bond issuer pays the principal and interest to the creditors on the maturity date of the bond. Bond is a low-risk investment tool because it is issued by the government, companies or other institutions with good credit. The income sources of bonds mainly include the following three aspects.
Bond interest income Bond interest income refers to the fixed interest rate income obtained by bondholders from bond issuers. Interest income is one of the main income sources of bonds and one of the main motives for investors to buy bonds. The interest rate of bonds is usually higher than that of bank deposits, and sometimes even higher than the expected yield of stocks. Interest income of bonds is usually paid annually, but there are also different payment methods such as monthly and quarterly. Interest income from bonds is a stable and predictable source of income, especially suitable for investors who need stable income.
Bond premium income The premium income of bonds refers to the premium paid by investors when they buy bonds. When the market price of bonds is higher than their face value, investors need to pay a premium to buy bonds. When this bond matures in the future, investors can get a nominal return or a premium income. Premium income is another important income source of bonds, which provides a potential income opportunity, because when the bond market price rises, investors can sell the bond to make a profit.
Bond redemption income The redemption income of a bond refers to the principal return paid by the bond issuer to the creditor on the maturity date of the bond. When the bond expires, the issuer of the bond needs to pay the principal and interest to the holder, and this principal return is also one of the sources of income of the bond. The redemption income of bonds is usually predictable, because when buying bonds, investors already know how much principal return they can get when the bonds expire. Before the maturity date of the bond, the bond issuer can also redeem it in advance, in which case, investors can get additional income.
The income sources of bonds mainly include interest income, premium income and redemption income. These income sources provide relatively stable and predictable income opportunities, making bonds an ideal investment tool. Investors should pay attention to risks when buying bonds, including interest rate risk, credit risk and inflation risk.