What are Bonds?

Definition of Bonds

Bonds are financial securities that represent debt owed by the issuing entity, whether it's a government or corporation. When an investor purchases a bond, they are lending the issuer a sum of money for a specified period of time in exchange for periodic interest payments and the return of principal at maturity.

Basic Characteristics

Par Value: The amount that will be repaid at maturity
Coupon Rate: The annual interest percentage
Maturity Date: The specified date for principal repayment
Issuer: The entity requesting the loan (government or corporation)

Main Types

• Government Bonds: Issued by governments, characterized by high security
• Corporate Bonds: Issued by companies, carrying higher risks in exchange for greater returns
• Sukuk: Bonds compliant with Islamic Sharia law

Basic Advantages

✓ Fixed and regular income
✓ Higher safety than stocks
✓ Investment portfolio diversification
✓ Possibility of trading in secondary markets

Basic Risks

⚠️ Interest rate risk
⚠️ Credit risk
⚠️ Inflation risk
⚠️ Liquidity risk

Practical Example

Let's assume the Saudi government issued a bond with the following characteristics:

• Par Value: 10,000 Saudi Riyals
• Coupon Rate: 4% annually
• Maturity Period: 5 years

Result: You will receive 400 Riyals annually as interest for 5 years, plus the recovery of 10,000 Riyals at the end of the term, making your total return 12,000 Riyals (10,000 + 2,000 in interest).

For deeper understanding: Read our comprehensive article "What are Bonds: A Complete Guide to Investing in Debt Financial Instruments" for detailed understanding of how bonds work, investment strategies, and the Saudi market.