What is an Index Bond?
Many wise investors use a portion of their savings to purchase bonds. With this type of investment, an individual gives a financial institution or government agency cash in exchange for the bond. Usually, the bond has a maturity date. This date determines when the investor can return the bond to the financial institution in order to collect the original cost of the bond, plus any accrued interest. An index bond is a special bond for which the value is determined by the current index rate, such as the Lehman ten-year bond index. An index bond does not have a maturity date. If the index rate plummets, the value of the index bond also decreases. If the index rate rises, the value of the index bond increases. An open-ended index bond is one that can be moved around from area to area, such as in a 401k plan. A closed index bond can be purchased in limited quantities, usually 100 shares, and can only be moved through a licensed broker. In either case, the purchaser can decide whether the ind
