text: import Container from "@material-ui/core/Container";
  import { Divider } from "@material-ui/core";
  
  import cssClasses from './Course.module.css';
  
  export default function Bonds() {
    return (
      <Container>
        <h1 className={cssClasses.header}>Bonds &amp; Bond Yield</h1>
        <Divider className={cssClasses.line} />
        <p className={cssClasses.paragraph}>
          Bonds are different from stocks. Bonds are relatively safer and less
          risky. They can be used as an asset for an investor to provide semi
          -yearly or yearly or quarterly cash flow (depend on the bonds).
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Bond is simply a loan taken out by a company. Instead of going to a
          bank, the company gets the money from investors who buy its bonds. In
          exchange for the capital, the company pays an interest coupon—the annual
          interest rate paid on a bond.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Bonds are financial instruments which are relatively a Safe bet for an
          investor to invest in. Bonds are issued by an company , Non-Banking
          finance institutions , Banking institutions and also government
          institutions.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Here is the logic, let’s assume that government wants to raise funds to
          develop a hospital in a town. The government needs funds for that
          hospital,, but the government does not have the funds for creating a
          hospital. So what government can do is they can issue bonds, which can
          be bought by investors. The government sell the bonds at a price say 1
          bond for 10 rupees. The government issue as many bonds as they want , to
          fulfil the need of the money requirement. Now here is how the bonds
          works.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Bonds have a maturity date. What that means is bonds have a fixed tenure
          and with fixed interest rates and after those tenure ends, you will get
          your principal amount back along with interest. Maturity date is the
          date when the principal or par amount of the bond is paid to investors
          and the company’s or issuer of bond obligation ends.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          As the promoter here is government, the risk involved in these
          investments is negligible. You are guaranteed to get your money back,
          that too with interest rates. But these interest rates are not as high
          as compare to money you can earn by investing in stock market value
          investing. So many argue that while bonds are safe, they don’t provide
          much returns to investors. While some Investors use bonds to maintain
          liquidity( cash in hand) and whenever they see an investment opportunity
          in different investment avenues, they use these bonds to invest in that.
          Bonds are a good financial instruments to have liquidity.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          When you invest in Bonds, you will get your money back at an interest
          rate. This interest rate is set when you invest in bonds. The bonds are
          purchased by investors who are interested in earning a fixed interest in
          a fixed tenure. After you have purchased the bonds , its interest rate
          cannot change and its tenure cannot change. Changing interest rates of
          bonds by the promoters changes its price structure. Let’s see how that
          happens.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Bonds have an inverse relationship to interest rates. For example
          imagine you buy a bond for 10 rupees at 2 % interest rate for a period
          of 2 years. After 6 months, the promoters issue new bonds which give
          interest rate of 4 % on the bonds that you were holding. If you have to
          sell your bonds in the open market, then you have to lower your price.
          That’s because why would anyone want to buy a 2% interest rate bond over
          4 % interest rate bonds. If you plan to hold the bond until the end of
          the its time period , then selling bonds is really not your concern and
          you don’t need to take much concern in it.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          A bond can be secured or unsecured. A secured bond pledges specific
          assets to bondholders if the company cannot repay the obligation. This
          asset is also called collateral on the loan. So if the bond issuer
          defaults, the asset is then transferred to the investor..
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Unsecured bonds, on the other hand, are not backed by any collateral.
          That means the interest and principal are only guaranteed by the issuing
          company. Also called debentures, these bonds return little of your
          investment if the company fails. ﻿ As such, they are much riskier than
          secured bonds.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          If the issue of bonds is not by the government but by a company , first
          check out that company financial health before investing in their bonds.
          When buying bonds , there is a risk of issuer defaulting on their
          commitment due to various reasons like they ran out of funds, the
          company is performing poorly and cannot repay its debt, etc. When you
          buy bonds , you take on this risk of default. So if you are buying bonds
          from Non-government sources, keep a eye on how is the issuer doing and
          what financial health is issuer in.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Some government bonds may provide you opportunity to earn money tax
          –free. You can keep a lookout on such bonds as not only these bonds
          safe, but also by being tax free, it increases your rate of returns from
          the investment.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          There is another risk associated with bonds. It is called prepayment
          risk. Prepayment risk is the risk that a given bond issue will be paid
          off earlier than expected, normally through a call provision. With a
          call provision added to the bond, the corporation can pay the debt off
          early. When buying bonds see if this call provision is there or not.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Consider a bond that is issued by a company or government for Rs. 100
          with a coupon of 7% for a period of five years. This implies that every
          year , the issuer will pay interest of 7% while the principal will be
          refunded after the bond matures. What drives the bond market is the fact
          that bondholders are free to sell their bonds before maturity.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          The face value of a bond is what it sold for initially. Since they are
          transferable through sales in the bond market , their value fluctuates .
          The returns accured by holders is measured by the yield, which is the
          rate of interest paid as coupons.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Yield is calculated as the coupon divided by the value of the bond. It
          is multiplied by 100 to be expressed in percentage. In effect, yield =
          (coupon/value) *100
        </p>
        <br />
        <p className={cssClasses.paragraph}>Yield= CouponValue × 100</p>
        <br />
        <p className={cssClasses.paragraph}>
          In the example above, if the face value of the bond fell to Rs.80, the
          yield would rise to 8.75%, that is (7/80*100). Correspondilgy , if the
          value rose to Rs. 120 , the yield would drop to 5.83%, that is
          (7/120*100).
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          It should be noted that even if the value of a bond fluctuates , the
          amount that can be redeemed after the term of maturity is reached is the
          face value, which is Rs.100 in this case. Bond yield is inversely
          proportional to its current value. The greater the yield, the lower the
          current market price of the bond.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Conventional metrics used by economist to diagnose the health of a
          country economy include inflation, repo rate of central banks, growth
          rate and national income . However , bond yields are also the means of
          analysing economy in a indirect way. As investors sell Government bonds,
          price drop, ad yield increases. A higher yield indicates greater risk.
          If the yield offered by a bond is much higher than what it was when
          issued, there is a chance that the company or government that issued it
          is financially stressed and may not be able to repay the capital .
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Government bonds are relatively more stable, but low demand at auctions
          indicate low investor confidence in the country economy.
        </p>
        <br />
        <p className={cssClasses.paragraph}>
          Now we move on to the next investment avenue , mutual funds.
        </p>
        <br />
        <br />
        <br />
        <br />
        <br />
        <br />
      </Container>
    );
  }
  