Different Types of Bonds
Government Bonds
These are also called Gilts (for Gilt
Edged Securities) because Government bond certificates were originally
edged in gold. In general, Government
bonds or Gilts are issued by the Government to raise money. These
are considered very safe investments since historically the British
Government has never failed to redeem a Gilt. As with savings
bonds, Gilts are fixed interest rate securities.
Gilts are classified
according to the term involved:
- Longs – more than fifteen
years
- Mediums – between five to fifteen years
- Shorts – less
than five years
Furthermore, there are Undated Gilts which pay
ongoing interest and have no date of maturity. Undated Gilts
have a low
rate of interest
and are generally not redeemed except in cases of fast
decreasing interest rates.
Finally, there are also Index-linked
Gilts which are tied to the inflation rate.
The interval of
dividend pay-outs depends on the type of Gilt. Also, maturity
dates, prices and rates
of interest all vary
according to
the kind of Gilt.
