Bond is a security issued by a corporates, financial institution or government which offers
regular or fixed payment of interest in return on the amount borrowed money for a certain period of time.
In a bond investor lends money to the issuer for a fixed period of time . There are two options of
interest in bonds in one option Interest is paid to the bond holder at regular intervals, the principal
amount is repaid at a later date, known as the maturity date , In other option recurring interest is paid
with principal on maturity these bond can also be called bonds with cumulative interest.
Bonds and stocks both are securities, the basic difference between the two is that bond holders
are lenders, while stockholders are the owners of the organization. Another difference is that
bonds usually have a defined maturity after which the bond is redeemed, whereas stocks may be
Types of Bonds
- Zero coupon bonds -
Zero coupon bonds do not pay any interest. They are
issued at a substantial discount to par value. The bond holder receives the full principal amount
on the redemption date.
- G-Sec Bonds -
Government Securities is a bond where government issue bond
and borrow money through it . It is the safest form of bond as it is issued by government . Government
issues bonds to raise money for funding infrastructure development, support subsidies or several other
- Corporate Bond -
Corporate Bond are issued by private and public companies
for investors. They borrows money from investors and promise to pay interest at regular intervals.
- Inflation Linked Bond -
In Inflation linked bonds; principal and the interest
payments are indexed to inflation. The interest rate is usually lower than that of fixed rate bonds with
a comparable maturity.
- Convertible Bond -
The holder of a convertible bond has the choice to convert
the bond into equity of the issuing firm on pre-specified terms. This results in an automatic redemption
of the bond prior to maturity date.