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Investment Bonds

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Government Bonds

Also known as gilts or gilt edged bonds. They are low risk due to the fact that the government can raise taxes to ensure that the bond reaches the target value at maturity. The first Government Bond was actually issued by the English Government 1693.

Supranational Bonds

Provided by eg: the European and World Bank, due to this again they are low risk and potentially low return.

Corporate Bonds

Are provided by companies with the intention of using the sales of the bonds to increase income to enable them to expand their business. As companies can be effected by economic issues and bad management and market competitors the risk is higher and so the potential return can be very good or can be very low.

Zero Coupon Bonds

Do not provide interest but are sold to you at a discounted value. You can select a long term which would normally be 10 to 15 years or a short term which can be less than 1 year and at maturity face value is paid. This type of bond does not pay interest or coupons which is why they are called Zero Coupon Bonds.

Index Linked Bonds

Are coupon and capital redemption bonds, both are linked to the rate of inflation and so this means that when the interest rates are high your bonds are much more profitable than when the interest rates are lower. The UK government were one the first governments tis issue this type of bond, the first being issued in 1981. This maturity of this type of bond is classed as follows, short term is 0 to 7 years, medium term is 7 to 15 and long term is 15 years plus. Index Linked Bonds can also be referred to as Gilts and they are now issued not just by the UK, but South Africa and Ireland also. They do not just issue Index Linked Gilts, Double Dated Gilts and Undated Gilts.

Double Dated Gilts

There are only 2 Double Dated Gilts in existence, although these are likely to be redeemed in the next few years so that there will be none left in existence. Double Dated means they can be redeemed in full or in part between the first and final date of maturity and that the government only needs to give 3 months notice as to when they will redeem the Double Dated Gilts, Callable Bonds or Redeemable Bonds as they are sometimes known. This type of bond basically gives the issuer (the government) the right to recall the Bonds when they see fit, but when doing this they do in effect have to buy them back and this is usually done at a price which exceeds that which they were originally bought at.

Undated Gilts

Otherwise know as Perpetual Bonds of which there are eight. These are basically Bonds which have no maturity date at all. They pay Coupons indefinitely and are not so the issuer of the bond does not ever need to redeem the bonds.

Convertible Bonds

Are basically corporate bonds which can be changed for a pre decided number of shares in stock of the company who provide the bonds. The coupon rate of this type of bond is low but as the bond can be changed into stock at a discounted rate this makes Convertible Bonds more appealing. Due to this the risk is classed as being low.

Premium Bonds

Although you may think that Premium Bonds do not pay interest, they actually do, though the interest is not paid directly to you. It is paid into a Prize Fund for which you are entered into a prize draw every month and where jackpots can be 1 million as well as all the prizes being tax free. The more bonds you own the higher your chance of winning, though at the beginning of 2009 the odds of winning stood at 36,000 to 1 for each bond you have. Premium Bonds are usually sold in 10's, though you must make a minimum purchase of 100 Bonds or 50 Bonds if you are paying by Standing Order. They are classed as being like a lottery bond and whilst you are a holder of the bond you stand a chance to win, if you ever decide to finish your bond the Government will buy back the bond at the price which you purchased it.

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