How to Buy Capital Bonds

Written by james collins
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How to Buy Capital Bonds
Capital bonds are less risky than most investments. (Jupiterimages/ Images)

There are two primary ways for investors to invest in a company or institution, through stocks or bonds. Stocks represent ownership and will not be paid back to the investor. Created in the early 1900s, capital bonds, also called fixed income capital bonds, are less risky, as bondholders are paid a rate of interest for the use of their funds and can then redeem the capital bond for the full amount of the principal invested. Capital bonds provide investors with a guaranteed return on investment through a fixed interest rate, although the rate may even increase from year to year.

Skill level:
Moderately Easy

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  1. 1

    Determine the features of the capital bond you want to buy. Decide if you want semi-annual or quarterly payments, or if you prefer investment-grade or high-yield bonds. The former have less risk, but provide a lower yield. The latter provide more risk, but compensate you with a higher yield.

  2. 2

    Download the prospectus for the capital bond you wish to purchase. Most companies and municipalities allow you to download directly from their website. You can also contact Investor Relations to request that a prospectus be sent to you.

  3. 3

    Determine how much you want to invest. Some capital bonds require an investment of as little as £65 and others go as high as £0.6 million. It depends on the capital project and your investment funds.

  4. 4

    Fill out an application. Most companies require you to fill out an application to start the process of buying the capital bond. Request an application from Investor Relations as well. Usually you will send the application directly to the company's transfer agent. The transfer agent oversees all transactions dealing with stocks or bonds for the company. The application will also provide instructions for where to send funds to purchase the bonds.

  5. 5

    Look up your bonds online if you prefer a virtual account, or have the company send you physical bonds. Most companies issue bonds electronically; however, some international companies will still issue physical bonds with physical coupons attached to them for redemption.

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