Bond and its Kinds


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

A bond is a debt instrument with which an entity raises money from investors. The bond issuer gets capital while the investors receive fixed income in the form of interest.

Bonds are of following kinds -


1.corporate bonds

Corporate bonds are issued by private and public corporations to raise money for a variety of purposes, like building a new plant, purchasing equipment, or growing the business. Until the date of maturity, the company usually pays a stated rate of interest, generally semi-annually.

2. Government bonds

These bonds are issued by a government to support government spending, most often issued in the country's domestic currency. Government debt is money owed by any level of government. Before investing in government bonds, investors need to assess several risks associated with the country such as: country risk, political risk, inflation risk, and interest rate risk.

3. Zero coupon bonds

Most municipal bonds provide semi-annual interest payments, but zero coupon bonds have no "coupon," or periodic interest payments. The investor receives one payment—at maturity — that is equal to the principal invested plus the interest earned, compounded semi-annually, at a stated yield.

4. Inflation-indexed bonds

Inflation-indexed bonds are openended debt funds designed to protect savings from rising prices (inflation). The objective is to generate capital appreciation and income through investment in inflation-indexed securities. However, there is no assurance that the investment objective will be achieved.

5. Foreign currency convertible bonds (FCCBs)

FCCBs are issued by an Indianlisted company in an overseas market and, hence, in a currency different from that of the issuer. The highlight, however, is the option of converting the bonds into equity at a price determined at the time the bond is issued.

Tuesday, 22nd Mar 2016, 10:28:33 PM

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