Jul 22,2024What is BOND?
Bond is simply a loan between the issuer (borrower) and the bondholder (lender). When you purchase a bond, you are lending money to an entity known as issuer. In return, you receive a bond and issuer pays fixed interest on the amount of money you lend.
CHARACTERISTICS OF BONDS
Face Value
A bond issued at a face value to the bond holder. For example ₹ 1000/- per bond.
Maturity Date
Term to maturity of a bond changes every day from the date of issue of the bond until its maturity. The issuer has to repay the principal amount on the maturity date.
Principal Amount
Total amount invested by the bond holder in a bond issue is the principal amount. For example you invest ₹ 10,000/- and get total 10 bonds with face value worth of ₹ 1000/- each.
Coupon Rate
The coupon is the interest rate that the issuer pays to the security holder. It refers to the periodic interest payments that are made by the issuer of the bond to the bond holder and are expressed as a percentage of the face value. For example just like your Bank FD payments.
TYPE OF BONDS
Fixed Rate Bonds:
Has a coupon or interest rate fixed till maturity of the bond
Floating Rate Bonds:
Also known as floaters where the interest rate is linked to reference rate such as MIBOR (Mumbai Interbank Offered Rate)
Zero-Coupon Bonds:
It does not pay periodic interest or coupon rate but is effectively rolled up to maturity and bond holders receive full principal amount at the redemption date.
Convertible Bonds:
This bond lets a bondholder exchange a bond to a number of shares of the issuer's common stock.
Inflation-index Bonds:
Inflation-indexed bonds are bonds in which the principal amount and the interest payments are indexed to inflation.
Perpetual Bonds:
These bonds are also often called perpetuities or 'Perps'. They have no maturity. They generally have a call option date, on which date the issuer has the discretion either to exercise the call option, retain the principal to the bond holder or to extend the tenure to a fresh call option date.
FIND BONDS: WHERE AND HOW?
PRIMARY MARKET :
If you are interested in purchasing a bond when it is first issued, you should look for various bonds being issued by companies currently or forthcoming bond issues.
SECONDARY MARKET :
Bonds are bought and sold by brokers and institutions in secondary market and mostly through over-the-counter (OTC), although most corporate bonds are also listed on BSE and NSE.
SOURCES TO FIND BONDS
Primary Market :
Lead Managers, Newspapers Ads, Financial Market portals.
Secondary Market :
Brokers, Dealers, Stock Exchanges, Banks etc.
