Monday, January 28, 2019

A Vocabulary of the Bonds

Bonds are one of the safest avenues of investment that an investor has an option to invest his/ her hard earned money. There are so many terms related to the bonds that you need to know as an investors that will help and guide in stint with the investments in bonds. These terms will you to understand the terminology of bonds. These are as below:

Bond: Bonds are the financial instruments that provide investors fixed interests for fixed period and less risky investment option. Technically bonds are loans that are borrowed by the organizations from the investors for a promise of compensation in form of interest. Normally the bonds are long term investment instruments.

Coupon Rate: The rate of interest an investor will earn from the bonds. These are fixed at the time of issuance.

Commercial Paper: These are short term unsecured financial instruments that are issued by the corporate bodies to meet short terms needs like working capital. These instruments have maturity period between three months to one year. Anyone can subscribe to these papers.

Certificate of Deposit: These are unsecured short term investment. These are promissory notes with maturity period of 91 days to one year and are issued by the schedule banks.

Corporate Debenture: These are debt instruments secured and unsecured both depending on issue. These are issued by corporate bodies for period of 18 months and above. Unlike many other investment instruments these are transferable and can be transferred to anyone anytime. These have high liquidity in the market.

Deep Discount Bonds or Zero Coupon Bonds: These are the bonds that are issued at a discount and at the maturity. The investor gets the face value of the bond when these bonds mature. Such bonds are also known as the zero coupon bonds. The discount is considered as interest or compensation for the investment.

Deferred Income Bonds: These are the bonds that provide interests after a deferment period. These bonds are seen as good one investment options that a person who is to retire soon.

Education Bonds: These are the bonds that are issued for the expansion or other purposes for the education sector.

Fixed Rate Bonds: These are the bonds that carry a fixed interest rate declared at the time of issuance and remain same till the maturity. The interest rate does not change with the change in normal interest rate in the market.

Floating Rate Bonds: These are the bonds that have an interest rate that is linked to some reference rate or independent index. The interest rates of such bonds changes with the changes in reference rate or index.

GILTS: These are the bonds that are issued by the governments; central, state or local to raise money from the public. These are fixed interest bearing instruments. In India RBI issues these on behalf of the Indian government.

Growing Interest Bonds: These are the bonds whose rate of interest increase over the time to keep the investors invested in the instrument.

Inflation Hedge Bonds: These are the bonds whose interests are linked to the inflation in the economy. These bonds provide a very effective tool to fight with the inflation.

Maturity Date: This is a date on which the bond will mature. In this date the investors are expected to receive whatever the bonds have earned for them.

Public Sector Bonds: These are the bonds that are issued by the public sector companies. Public sector companies are those where the government has controlling stake in the company.

Tax Saving Bonds: The bonds that provide tax breaks u/s 88 are known as tax saving bonds. These are used for tax planning purposes.

Yield: The effective return from the bonds is called the yield.

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