Bond is the term which is used in finance, it is a debt instrument which is issued by the individual or a company and the person or the company issuing it is called issuer. It is issued in favor of individuals or companies who owe money from issuer and such parties are called bond holders. Given below are some of the features of bond –
- The time period is extended and majority of bonds are of maturities which range from 3 years to 30 years and they are also called fixed income securities or investments.
- It has to be repaid after a fixed period of time which is mentioned in the instrument itself and it is called par value of the bond and if the company is unable to pay it on time that is on its maturity then it can lead to disastrous consequences for the company.
- Bondholder gets interest until the maturity also known as coupon and this coupon dates are fixed; it can be monthly, quarterly or yearly. The bondholder gets interest until the maturity and after principal repayment there is no obligation for issuer to pay interest to the bondholder.
- They are traded in debt or money markets and one can buy and sell it just like stocks, if the bond trades at below the par value then it is said to be trading at discount whereas if it trades above the par value than it is said to be trading at premium.
- There are many types or variants of bonds which are available and traded in the market, some examples are government bonds, zero coupon, convertible and non convertible bonds and so on. If you want to know more about them you can look in this post for detailed description.
- There are various risks attached to bonds some of them are interest rate risk, default risk, inflation risk, event risk and so on and therefore one should carefully look into these risk and then go for investment into the bond.