What are bonds?
Municipal bonds, or “munis,” are issued by states, counties, cities, or their agencies to finance public projects such as new schools, road and bridge development and improvement, and construction of public utilities, affordable housing, airports, and hospitals, and a myriad of other public facilities and programs. A municipal bond effectively represents a loan made by investors to the municipal issuer, and the periodic interest payments and principal repayment at maturity paid to investors represent the issuer’s repayment of that loan.
Bonds are basically debt instruments. Government, statutory boards, companies can go to the public to borrow money by issuing bonds. They guarantee a fixed coupon rate (interest) every 6 months to compensate for the use of money. Investing in bonds is different from equities primarily because an investor is lending money whereas in equities, the investor is taking ownership of the investment (shares) and hopes to profit from its dividends or capital growth in time. This accounts for the volatility in the price of each of these types of investments. Bonds, historically, provide more stability in the investment portfolio compared to equities.
