An investment that provides capital to corporations or sovereign entities through debt instruments is commonly known as a bond. These instruments represent a formal agreement where the issuer promises to repay the principal amount along with interest, referred to as the coupon rate, over a specified period. For example, a company might issue bonds to fund expansion projects, or a government could issue bonds to finance public infrastructure.
This form of investment offers a fixed income stream, providing predictability for investors. It can also offer diversification to a portfolio, potentially reducing overall risk. Historically, these instruments have served as a stable component in investment strategies, particularly during periods of economic uncertainty, acting as a counterbalance to more volatile asset classes.
