A:

The North American Securities Administrators Association (NASAA) has acknowledged that "church bonds" are allowed to be issued under certain guidelines. These bonds can be issued only by religious affiliates that are identified as being a "church", "parish", "mosque" or a "synagogue", and can only be used to finance anything related to church property. For instance, the issuing church can use the raised funds to build a church structure, or upgrade church property. The funds only are allowed to better church property, and cannot be used to directly generate revenues.

These types of bonds are backed by collateral by the issuing church, in the form of church property. This is mandated, under most circumstances, because most churches do not have enough financial capital or cash flow to accommodate a non-secured form of debt. In light of this, the church also must set up a sinking fund, and make large enough payments into the fund - as set out by the minimum standards by the NASAA - that can cover coupon payments and eventually the face value of the bonds.

Along with the sinking fund payment schedule, the church also must release financial data so bond holders know the financial strength of the church, and can determine if the bond is worth purchasing. These financial statements must include a Cash Flow Statement, Balance Sheet and Income Statement, all of which must be audited. During the holding period, the bond holder may request financial data from the church at any time, and must receive the most recent financial data available.

It is important to remember that no matter if you are purchasing a church bond, or regular bond, the likelihood of repayment is the most important factor. This will help you determine if the bond will provide you with a high enough return, and will compensate you for the risks you may be taking.

To learn more about bonds, read Bond & Debt Basics or Advantages Of Bonds.

RELATED FAQS
  1. Can Mutual Funds Only Hold Bonds?

    Find out which mutual funds include only bonds in their portfolios. Learn why some funds invest in different types of bonds ... Read Answer >>
  2. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
  3. What are the key factors that will cause a bond to trade as a premium bond?

    Learn about the primary factor that can cause bonds to trade at a premium, including how national interest rates affect bond ... Read Answer >>
Related Articles
  1. Investing

    A Guide To Faith-Based Investing

    If you've wondered how to invest in a way that reflects your religious belief, we've got the answers for you.
  2. Small Business

    Start A Religion: Scientology's Business Model

    Amid negative publicity, Scientology has used its auditing and consulting services, and its tax-exempt status, to make profits.
  3. Investing

    Consumer Products Stocks Jump on Q1 Results

    Stellar results lift these two firms after weak results dragged on industry peers last week.
  4. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  5. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  6. Investing

    An Introduction to Individual Bonds

    Individual bonds are better than bond funds and can be a key component to one’s investment strategy.
  7. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  8. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  9. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
RELATED TERMS
  1. Parsonage Allowance

    An allowance designated by a church or other organization for ...
  2. Serial Bond

    A bond issue in which a portion of the outstanding bonds matures ...
  3. Corporate Bond

    A debt security issued by a corporation and sold to investors. ...
  4. Bond Resolution

    1. A document used with government bonds, especially general ...
  5. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  6. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  3. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  6. Indirect Tax

    A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An ...
Trading Center