What is an Assumed Bond?

Malcolm Tatum

Assumed bonds carry a lot of factors in common with all other types of bonds. An assumed bond will usually carry a face value and is anticipated to generate additional revenue by way of interest income. However, there is one key difference that sets an assumed bond apart from other types of bonds. One corporation may issue the assumed bond, but a different corporation will be responsible for guaranteeing the bond. Here are a couple of things about an assumed bond to keep in mind.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

Because there is more than one entity involved in the issue and life of the assumed bond, there is often some confusion of where to go when there is a question about the status of the bond. In most cases, it will be the issuing corporation that will be able to handle any general questions about the nature of the bond. However, when it comes to specifics about the current value of an assumed bond that was issued several years ago, the corporation that holds liability on the bond will be the source of information. It is important to remember that the corporations with the liability are also usually the corporations that will actually issue the payments on the bonds. For this reason, it is always a good idea to cultivate a working relationship with both the issuing company and the entity that is responsible for making the interest payments to the bond holder.

The concept of the assumed bond has been around for a number of decades. Originally, the idea of involving more than one corporation in the issuing and management process was one way to ensure that the value of the bond was protected. While this is not really an issue today, an assumed bond can still be a good idea, especially if the corporation that is overseeing the liability associated with the bond is a very stable one.

In many cases, the consumer will not see any difference between an assumed bond and many other types of bonds that are on the market today. In some cases, the return on the investment may be slightly more attractive than with other bonds, but that is not always the case. Still, assumed bonds are normally obtained through reliable financial institutions who have partnered with other stable institutions to provide a good rate of interest on the value of the bond. As a means of making a relatively safe investment with an expectation of making a small return, an assumed bond is a good choice.

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