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As an investor, there are potential benefits and drawbacks to consider before investing in callable bonds.
Heres what you oughta know about callable bonds.
What Are Callable Bonds?
When the bond reaches its maturity date, you get back the amount you originally invested.
How Callable Bonds Work
If youre considering buying callable bonds, its important tounderstand how they work.
The call price is indicated in the bonds prospectus, so its important to check before you invest.
The call price is higher than theface value of the bond.
So the issuer is actually paying a premium to call the bond.
So why would an issuer call a bond instead of waiting until the bond matures?
There are a couple of reasons a bond issuer might call a bond before its maturity date.
Types of Callable Bonds
There are three main types of callable bonds.
Fully Callable Bonds
Fully callable bonds can be called at any time after the call date.
The full amount of the bond can be called.
Fully callable bonds are themost common typeof callable bonds issued by corporations.
This accounts for the present value of future payments.
Risks of Callable Bonds
Callable bonds also have risks.
Since TYC calculations are tricky, you could use anonline yield calculatorto do the math for you.
Conclusion: Are Callable Bonds Right for You?
Callable bonds, like any investment, have risks and benefits.
FAQ
Taylor Milam-Samuelcontributed to the reporting for this article.
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your Financial Advisor options today for Free!
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