What Are Mini-Bonds And How Do They Work

With this type of mini-bond the buyer will not receive any type of interest payments during the time of the their purchase and the ending maturity date. Money is only paid out after the bond has fully matured. South Carolina offered these types of mini bonds in November 2000 for prices as low as $200 per bond.

These type of mini-bonds paid interest on average every six months util the time that the bond has fully matured. Typically they will cost more than Capital Appreciation Bonds. In the case of South Carolina they charged a minimum of $500 per purchase.

Back in 1992 New York City sold Mini-Bonds as "zero coupon bonds" these particular types of bonds provided zero interest but were sold at a large discount from their current face valules. For example an that time in 1992 the current market rates of 5.95% meant that a $5000 bond purchased at that time could be bought for only $2795 and cashed out 10 years later when the bond matured for the full $5000 bond price.

Zero coupon mini-bonds are great options for investors looking to ensure a certain return on their investments over a specific period of time. The New York Times for example reported that many buyers of New York Mini-Bonds were looking to offset the cost of their childrens college tuition and retirement plans that were at least 10 years away. While recent retirees shied away from these types of investments due to the time required for maturity.

The purchasing of Mini-Bonds is dependent upon the selling bonds agency. In the case of South Carolina bonds only legal residents of that State were eligible to purchase those bonds. While Hong Kong offered their own mini-bonds available to any resident of Hong Kong. Just like any other investment the scope of sale is dependent upon the issuing agency.

In most cases these bonds will be secured with the full faith, credit and taxing power of the issuing governmental agency. This means you are guaranteed the money owed to you at the time of your bonds maturing date. These are very secure agreements between the buyer and selling agencies and are therefore considered excellent investment options for risk cautious investors.

Bonds issued by state and government agencies are also often state and federal tax exempt, a fact that can save you money based on future tax rates.

In many cases businesses can request a mini-bond loan to offset their cost of manufacturing or non-profit dealings. In these cases mini-bonds are typically 1.5-2.5% cheaper to borrow against than standardized loans and are often tax-exempt. For these reasons they are often attractive loan types of business owners in the field of manufacturing and non-profit 501(c)(3) organizations. Typically loans are made for smaller projects in the range of $250,000 - $2 million, although those numbers can vary based on the lending parties own set requirements (State, Federal, etc).

Essentially Mini-Bonds are many things to many agencies. In their most simple terms they are smaller sized bonds that are used to raise capital from smaller investors. They are typically guaranteed as tax-exempt investments and they offer different types of payout programs for interest and maturity payments. They can also offer face value discounts with a guaranteed payout at the time of maturity.

Just like many investments these days Mini-Bonds continue to evolve as needed. The examples provided on this page have hopefully helped you understand these types of bonds a little bit more, if you're interested in mini-bond investments I suggest that you check with local agencies to determine if mini-bonds are available in your area at this time.