Personal Finance Term
Bond
A loan you make to a government or company that pays you regular interest and returns your original amount at the end of an agreed term. Bonds are generally less volatile than shares and are used for steadier income and diversification.
When you buy a bond, you are lending money to the issuer, who promises to pay periodic interest (the coupon) and repay the face value on maturity. Government bonds are typically considered safer than company bonds, which pay more to compensate for higher risk. In Malaysia, individuals usually invest in bonds through unit trusts, bond ETFs, or specific retail offerings rather than buying large wholesale issues directly, and the Shariah-compliant equivalent is sukuk.
Bonds play the role of the steadier, income-generating part of a portfolio, helping to cushion the ups and downs of shares. They are not risk-free: an issuer can default, and bond prices fall when interest rates rise, so the value of a bond fund can drop even though it is generally less volatile than equities. For most Malaysian investors, a bond or sukuk allocation is about balance and income rather than high growth.