Types of Bonds in India

Every individual needs to put some part of his earnings and income into something which would benefit him in the long run and secure his/her future in the times to come. Investment is an essential thing in the present scenario as unavoidable and sudden circumstances can arise anytime and anywhere. Any earning individual needs to invest money into something that acts as an asset for the depositor and which would guarantee maximum returns with minimum risks in the future. For instance, putting money into different types of bonds in India is an excellent option. Money saved now, as a part of the present will help you overcome tough times in the best possible way and release the tensions of the future.

What are Bonds?

The various kinds of bonds are issued by different associations and funding organizations. These are issued generally for more than one year to raise money by borrowing.

Organizations to raise the capital issue the various kinds of bonds in India to investors which is nothing but a financial contract, where the organization or the funding company promises to pay the principal amount and interest (in the form of coupons) to the holder of these protections in the form of bonds after a certain date which can also be recognized and called as the maturity date. Some of the bonds in India do not pay interest to the investors, however, the issuers must pay the principal amount to the investors.

What is the Maturity Date of these bonds?

The maturity date of the various kinds of bonds that are issued to different people refers to the final date for the payment of any financial product when the principal along with the interest that has been calculated for the final figures needs to be paid to the investor by the issuer.

Characteristics of a Bond

●     A bond can generally be understood as a form of debt which the investors pay to the issuers for a defined time frame. In a layman’s language, these are the belongings of the bondholders who offer credit to the company issuing the bond.

●     Bonds generally are known to have a fixed maturity date.

●     All bonds tend to repay the principal amount after the maturity date; however, some bonds do pay the interest along with the principal to the bondholders.

Types of Bonds

Following mentioned are the different types of bonds:

Fixed-Rate Bonds

In Fixed Rate Bonds that are offered to the people, the interest remains fixed throughout the tenure of the bond. Owing to a constant interest rate, these fixed-rate bonds are likely to be resistant to changes and fluctuations in the market.

Floating Rate Bonds

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

Zero Interest Rate Bonds

Zero Interest Rate Bonds are the ones that do not pay any regular interest to the investors. In such types of bonds, the issuers only must pay the principal amount to the bondholders.

Inflation-Linked Bonds

Bonds that are linked to inflation are called inflation-linked bonds. The interest rate of Inflation-linked bonds is generally lower in comparison to fixed-rate bonds.

Perpetual Bonds

The type of bonds with no maturity dates are called perpetual bonds. Holders of the perpetual bonds enjoy the constant interest throughout.

Subordinated Bonds

These bonds are the ones 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, the presence of subordinated bonds is given less importance as compared to senior bonds which are paid first.

Bearer Bonds

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

War Bonds

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

Serial Bonds

The particular type of bond maturing over a while in installments is called serial bonds.

Climate Bonds

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

The different types of bonds are available to different people and they can choose as per the convenience to get rid of the liability and create long-lasting assets.

 

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