Bonds are Debt Instruments which provide a regular stream of income to investors through repayment of borrowed money with interest at fixed intervals (coupons) over a particular period (tenor).

The common issuers of bonds include Governments and companies to raise funds for their various activities. This makes them borrowers/debtors.

On the other hand, investors and institutions are known as lenders/creditors as they lend money to the bond issuers by purchasing the bonds in return for interest.

There are several ways to invest in bonds, including purchasing individual bonds or investing in bond unit trust funds.

Most individual bonds are bought and sold in the bond market, although some corporate bonds are also listed on the Exchange. The bond market comprises of securities firms and banks that trade bonds; brokers or agents, who buy and sell bonds on behalf of customers in response to specific requests; and dealers who keep an inventory of bonds to buy and sell.

Bond unit trust funds offer a fixed portfolio of investments in government, municipal, mortgage-backed or corporate bonds, which are professionally selected and remain constant throughout the life of the unit trust.

Bonds and equities/stocks are both investment securities. The major difference between the two is that stockholders have an equity/ownership stake in the company, whilst bondholders have a creditor stake in the company.

There are four key characteristics to consider when choosing a bond. They are:

• the term or tenor of the bond
• the creditworthiness of the bond issuer
• the legal structure of the bond
• the interest rate or coupon payments

The tenor is the legal lifetime of a bond, usually described via a time period from its date of issuance ('ten year') or via its maturity date ('May 2017').

The creditworthiness of a bond issuer determines its capacity to repay its debt and interest rates charges. The poorer the creditworthiness, the higher the coupon/interest rate is likely to be as investors will demand to be rewarded for the higher risk that they are taking on their capital.

The legal structure of a bond determines the priority of an investor's rights to be paid their interest coupon, or to be repaid their nominal amount at maturity, or in the event of company failure or bankruptcy.

The interest rate or coupon is the interest paid by the bond issuer to the bond holder for the use of their money over the term of the bond. They are usually paid on a regular basis, ranging from quarterly, semi-annually, or annually.

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If you have any enquiries, you may speak to your Citigold Relationship Manager. Alternatively, you may contact us at 1300 30 3300 or e-mail us at malaysia.customer.service@citi.com