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What are Bonds?

The bonds are fixed income instruments representing an obligation of borrower to pay a lender their principal and usually interest on the principal. Bonds can also be regarded as a financial contract between the issuer and the bondholders where the issuer promises to pay the principal amount and coupon at predefined dates to bondholder. Also Bonds can simply be regarded as loan taken by the company from the investors who have invested in bonds on which the company will usually pay out interest to bond holders at predefined dates.

Who issues bond? Governments (at all levels), government entities, enterprises and corporations (public as well as private) issue bonds to borrow money.

Specification of Bonds

  • Face Value

    It is the monetary value of the bond at maturity. It is also the reference amount used by the bond issuer when calculating interest payments.

  • Coupon Rate

    It is the monetary value of the bond at maturity. It is also the reference amount used by the bond issuer when calculating interest payments.

  • Coupon Date

    It is the date on which bond issuer will make payment to the bond holder or in or words it is date on which bond issuer will receive the interest in his/her bank account

  • Maturity Date

    It is the date on which bond issuer will repay the bond holder the principal amount lend (face value of bond).

Classification of Bonds

  • 1

    Government Securities Bonds

    The Government securities bond is a debt security issued by the central or the state Government of India. On these bonds, interest can be fixed or floating and is paid out semi-annually. However, the majority of government bonds carry a fixed interest rate.

  • 2

    Corporate Bonds

    The Corporate bond is a debt security issued by the companies (public and private) to borrow money from investors for various reasons such as financing a project, debt refinancing, capital investments in fixed assets, business expansion etc.

  • 3

    PSU Bonds

    PSU bond is a debt security issued by the government-owned organizations (public sector undertakings) in which government holds a stake of more than 51 percent.

  • 4

    Tax Free Bonds

    Tax free bonds are the corporate bonds issued by public sector undertakings on which the interest income received by investor is exempted under section 10 of income tax act.

  • 5

    Zero Coupon Bonds

    Z-bond is a fixed income instrument on which coupon payments are made to investor are fixed interval but instead are issued at a discount to their par value, generating a return once the bondholder receives the full face value when the bond matures.

  • 6

    Convertible Bonds

    Convertible bonds are debt instruments that include an embedded option that allows bondholders to convert their debt into stock (equity) at some point, based on certain conditions such as the share price.

  • 7

    Callable Bonds

    Callable bonds are debt instruments that include an embedded call option which gives the issuing company a right to Call back the bond or to make the principal repayment to bondholders before the maturity of bond.

  • 8

    Puttable Bonds

    Puttable bonds are debt instruments that include an embedded put option which gives the bondholders a right to put or sell the bond back to the company before the maturity of bond.