![]() ![]() ![]() Generally, bonds are considered safer assets as compared to equity and other riskier investment options. To sum up, there are many types of bonds available to investors. Things to consider before investing in Bonds The yield can be calculated considering the face value, annual interest, maturity, and the market price of the bond. If the bond is held till maturity, the return is termed as yield to maturity. Yield: Yield means the return investor gets from the bond for a specific time.If the rating is lower, the risk involved in the bond is higher along with higher returns. A higher rating suggests a lower amount of risk and lower yields. Credit rating: Each bond holds the rating, provided by credit rating agencies.The bonds are categorized as short-term or long-term bonds based on their maturity date. Maturity: Except for perpetuity bonds, all the bondholders get repaid at a specific date when the bonds get matured.The rate of interest or coupon payment varies depending upon the economic circumstances, the creditworthiness of the issuer, type of bond, maturity, etc. Coupon rate: The issuer of the bonds compensates the bondholders by paying them interest.This price may differ from the bond price prevailing in the secondary market. Face Value: The face or par value of the bond is the price of a bond repayable at maturity.Commonly found bond issuers are the government, government institutions, municipalities, and corporations. Issuer: Bond issuers borrow money from investors against bonds.The key features of bonds are as follows. Since the benefit offered is for investors, these bonds pay lower returns. Puttable bonds give the bondholder the right to return the bond and ask for repayment of principal at a pre-agreed date before maturity. Though, the investor can also opt to receive the principal repayment at the maturity, if they don’t want to exchange it with shares.Ĭallable bonds are high coupon paying securities that give the issuer the right to call back the bonds at a pre-agreed price and date. The investors holding convertible bonds get the right to convert the bond to a predefined number of equity shares in the issuing company at a particular time from the tenure. Therefore, the coupon will be paid considering Rs. After a year, the inflation-adjusted principal amounts to Rs. The principal is adjusted according to the inflation and coupon payments are made based on the adjusted principal.įor example, an investor purchases an Inflation-linked bond with a face value of Rs. These types of bonds aim at minimizing the impact of inflation on the face value and coupon payments. Though, they keep paying steady coupon payments to the bondholders till perpetuity. In this type of bond, the issuer does not repay the principal amount to the bondholders. Perpetual bonds are those debt securities which do not have a maturity. At the end of 20 years, the issuer will pay Rs. The difference is the yield for investors.įor example, an investor buys a 20-year zero-coupon bond, with a face value of Rs. Though, these bonds are issued at a discount and repayable at the par value. This means the NSC interest rate is the benchmark and any fluctuation in it directly affects the coupon payment of this bond.Īs the name implies, these bonds do not pay periodic coupons during their tenure. The bond pays interest of 40 points higher than the prevailing National Savings Certificate interest rate. Instead, the interest rates vary, depending on the set benchmark, during the tenure.įor example, an investor purchased an 8-year floating rate bond issued in 2015. 75, annually every April, till 20th April 2023.įloating-rate bonds do not pay fixed returns each period. The investor will get a fixed interest of Rs. 1000, issued on 20th April 2013 which offers a coupon rate of 7.5%. The bondholders earn predictable and guaranteed returns regardless of the prevailing market conditions.įor example, An investor purchased a ten-year fixed-rate government bond of Rs. Types of Bondsįixed-rate bonds pay consistent interest amounts until maturity. This article guides on different types of bonds, features of bonds, and the things Investors should consider before investing in the bonds. Bonds can be categorized based on coupon rates, maturity, convertibility, and so on. However, the bond issuer compensates the investors during the tenure and promises to pay the principal back at the end of the tenure. They are financial instruments which raise funds from the general public for a specific period. When the government or corporate requires funds, they may consider issuing bonds. What is Dematerialization & It's Process.Difference Between Demat and Trading Account.Documents Required to Open a Demat Account.Aims, Objectives and Importance of Demat Account.What is the Sub-broker Program of IIFL?. ![]()
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