Premium bonds are priced higher than their par value. A premium bond sells at a price higher than its par value, because the interest rates on premium bonds are higher than the prevailing rates on the market. This makes premium bonds worth more than a bond with lower interest rates.
Here are five things you need to know about premium bonds:
- A premium bond can be an attractive investment instrument for risk-averse investors because of the capital guarantee attached to it and less volatility compared to stocks. There is also a commitment from the issuer about a fixed rate of interest payment. A bondholder gets a guarantee from the issuer that the face value of the security would be returned at the time of maturity, which is not the case for stocks. With premium bonds carrying a higher interest rate, they carry a better chance for a higher return than other bonds.
- Purchase of premium bonds can be as easy as buying stock. You can buy premium bonds from any registered bank or bond dealer and directly from the issuer, both online and offline. All leading brokerage firms deal in buying and selling of premium bonds.
- In addition to buying individual bonds, you can also invest in premium bonds through bond mutual funds. This gives you an opportunity to invest under the guidance of a professional fund manager.
- Before buying or selling premium bonds, you should do thorough research on the prevailing prices, interest rates, and commission or mark-ups, if any, charged by the brokers or dealers. The prevailing rates can be checked in financial journals, newspapers, or online.
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