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. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  2. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>
  3. How do I use the holding period return yield to evaluate my bond portfolio?

    The holding period return yield formula can be used to compare the yields of different bonds in your portfolio over a given ... Read Full Answer >>
  4. What is the relationship between current yield and yield to maturity (YTM)?

    Both the current yield and yield to maturity (YTM) formulas are methods of calculating the yield of a bond. However, these ... Read Full Answer >>
  5. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  6. How can I use the holding period return yield to determine whether or not I should ...

    Use the holding period return yield formula to determine whether the time is right to sell your bond. With this calculation, ... Read Full Answer >>
Related Articles
  1. Investing Basics

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  2. Investing Basics

    Explaining Financial Assets

    A financial asset is intangible property that represents a claim on ownership of an entity or contractual rights to future payments.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Agency Bond

    Find out about the iShares Agency Bond exchange-traded fund, and explore detailed analysis of the ETF that tracks U.S. government agency securities.
  4. Mutual Funds & ETFs

    ETF Analysis: Guggenheim BulletShrs 2018 HY CorpBd

    Find out about the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, and get information about this ETF that focuses on high-yield corporate bonds.
  5. Mutual Funds & ETFs

    ETF Analysis: First Trust Tactical High Yield

    Find out more about the First Trust Tactical High Yield fund, a debt security-focused ETF designed to produce high income.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Short Term Hi Yld Bd

    Find out about the SPDR Barclays Short Term High Yield Bond ETF, and explore detailed analysis of the fund that tracks short-term, high-yield corporate bonds.
  7. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Short Term Corp Bd

    Learn about the SPDR Barclays Short-Term Corporate Bond ETF, and explore detailed analysis of the exchange-traded fund tracking U.S. short-term corporate bonds.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Bond

    Find out about the Vanguard Intermediate-Term Bond ETF, and delve into detailed analysis of this fund that invests in investment-grade intermediate-term bonds.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Professionals

    Top 4 Ways to Avoid Muni Bond Mistakes

    Muni bonds are often perceived as safe investments. But it's important to do some thorough research before investing.
RELATED TERMS
  1. Yield To Maturity (YTM)

    The total return anticipated on a bond if the bond is held until ...
  2. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  3. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  4. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
  5. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
  6. Next Generation Fixed Income (NGFI) Manager

    A Next Generation Fixed Income (NGFI) manager is a fixed income ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!