This section is from the "Everybody's Guide to Money Matters" book, by William Cotton. With a description of the various investments chiefly dealt in on the stock exchange, and the mode of dealing therein. Some account of the pitfalls prepared for the unwary, and suggestions to the cautious investor.
These are loans raised by boroughs and counties, and other authorities in this country, for local purposes, upon the security of the rates or other assured income. Before the money is borrowed the consent of the Local Government Board is necessary to make the loan legal, and evidence is required that the resources of the borrowers are ample to meet their obligations.
On most of these stocks the rate of interest is 3 per cent., though there are some few at 3 1/2 per cent. The principal is redeemable at fixed dates, or by a sinking fund, that is, by setting aside so much a year to pay off the loan at a fixed time, or as opportunity offers. For instance, in times when money is scarce or dear there is a probability of these stocks falling below their par value, and the Sinking Fund is then used to buy the stock in the market. Thus the Corporation may be able in effect to pay off a loan of £100 for £90 or £95, whatever the price may be, and so gain the amount of the difference.
Investments in securities of this kind may be considered absolutely safe, although certainly there is the contingent risk of a town, after borrowing up to its full powers, drifting into decay from the loss of its staple trade, and so finding itself unable to meet its obligations. The investor should, however, find no difficulty in discovering where such a contingency would be possible.
The interest on these loans is usually sent direct to the stock-holders, by means of an order on a bank.