MSG Team's other articles

11772 What is Venture Leasing? – Advantages and Disadvantages

In the previous few articles, we have already learned about how venture capital and venture debt work. We now also know the pros and cons of venture debt. However, there is another form of debt called venture leasing which is commonly used by investors in the marketplace. In this article, we will have a closer […]

11357 Concept of Special Drawing Rights (SDR’s)

What Are Special Drawing Rights (SDRs)? Special Drawing Rights (SDRs) were a part of the monetary system that was created post World War-2 in the Bretton Woods arrangement. Since the United States had almost all of the gold reserves of the world at that time, the Special Drawing Rights (SDRs) were intended as a supra-national […]

11656 Types of Costs to be Allocated in Job Order Costing

Companies incur a variety of costs in their day to day operation. These costs are very different from one another and need to be treated differently by the accountants to give a fair picture of the organization. Here is a list of the different types of costs that are usually incurred by an organization as […]

11353 The SpaceX Success Story

The world has seen many unconventional start-ups. However, almost all start-up companies derive their revenue from the earth. It is Elon Musk’s SpaceX that has opened up the investing community to a different dimension. Most of the businesses SpaceX is running and plans to run are related to outer space. Research related to outer space […]

9562 How a Recession Will Impact Pension Funds?

The post-pandemic economic environment across the world has bearish undertones. During the pandemic, many countries had lowered their interest rates to unsustainable levels. As a result, they are now witnessing record inflation numbers. The central bankers across the world have started tightening the monetary policy. This means that the risk-free interest rates are likely to […]

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Why Investment is Important ?

Every individual needs to put some part of his income into something which would benefit him in the long run. Investment is essential as unavoidable circumstances can arise anytime and anywhere.

One needs to invest money into something which would guarantee maximum returns with minimum risks in future. Money saved now will help you overcome tough times in the best possible way.

What are Bonds?

Bonds are issued by organizations generally for a period of more than one year to raise money by borrowing.

Organizations in order to raise capital issue bond to investors which is nothing but a financial contract, where the organization promises to pay the principal amount and interest (in the form of coupons) to the holder of the bond after a certain date. (Also called maturity date). Some Bonds do not pay interest to the investors, however it is mandatory for the issuers to pay the principal amount to the investors.

What is a Maturity Date?

Maturity date refers to the final date for the payment of any financial product when the principal along with the interest needs to be paid to the investor by the issuer.

Characteristics of a Bond

  • A bond is generally a form of debt which the investors pay to the issuers for a defined time frame. In a layman’s language, bond holders offer credit to the company issuing the bond.

  • Bonds generally have a fixed maturity date.

  • All bonds repay the principal amount after the maturity date; however some bonds do pay the interest along with the principal to the bond holders.

Bonds

Types of Bonds

Following are the types of bonds:

  1. Fixed Rate Bonds

    In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond. Owing to a constant interest rate, fixed rate bonds are resistant to changes and fluctuations in the market.

  2. Floating Rate Bonds

    Floating rate bonds have a fluctuating interest rate (coupons) as per the current market reference rate.

  3. Zero Interest Rate Bonds

    Zero Interest Rate Bonds do not pay any regular interest to the investors. In such types of bonds, issuers only pay the principal amount to the bond holders.

  4. Inflation Linked Bonds

    Bonds linked to inflation are called inflation linked bonds. The interest rate of Inflation linked bonds is generally lower than fixed rate bonds.

  5. Perpetual Bonds

    Bonds with no maturity dates are called perpetual bonds. Holders of perpetual bonds enjoy interest throughout.

  6. Subordinated Bonds

    Bonds which are given less priority as compared to other bonds of the company in cases of a close down are called subordinated bonds. In cases of liquidation, subordinated bonds are given less importance as compared to senior bonds which are paid first.

  7. Bearer Bonds

    Bearer Bonds do not carry the name of the bond holder and anyone who possesses the bond certificate can claim the amount. If the bond certificate gets stolen or misplaced by the bond holder, anyone else with the paper can claim the bond amount.

  8. War Bonds

    War Bonds are issued by any government to raise funds in cases of war.

  9. Serial Bonds

    Bonds maturing over a period of time in installments are called serial bonds.

  10. Climate Bonds

    Climate Bonds are issued by any government to raise funds when the country concerned faces any adverse changes in climatic conditions.

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