Small denominations securities which normally have maximum face value of $ 5000 are known as baby bonds. Due to their small denominations, baby bonds attracts more small investors and retail investors. Municipalities, states and counties issue these baby bonds to fund their projects requiring capital expenditures. Baby bonds are exempt from tax and therefore also known as zero-coupon bonds. Baby bonds generally has maturity between 8 to 15 years.
Baby Bonds Example: Issued in 1990s
In the United Kingdom, the baby bonds refer to a type of bond launched in the late 1990s with the aim of encouraging savings for children by their parents. Parents had to make small monthly contributions for at least 10 years; in return, the child was received a guaranteed minimum amount of tax-free upon attaining the age of 18.