BOND

Bond

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed as maturity.
A bond is simply a loan in the form of a security with different terminology: The issuer is equivalent to the lender, the bond holder to the borrower, and the coupon to the interest. Bonds enable the issuer to finance long-term investments with external funds. Note that certificates of deposit (CDs) or commercial paper are considered money market instruments rather than bonds.
Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity).

Types of Bond Market

Depending on the type of bond and the type of buyer, multiple types of bond markets exist:

1) Types of Bond Markets Based on Buyers:

a) Primary Market – The main market is where the bond issuer sells bonds to investors directly. New debt securities are being issued in primary markets.
b) Secondary Market – The definition of the bond market incorporates flexibility. Bonds purchased in the primary market can be sold on the secondary market. Brokers assist in the secondary market buying and selling of bonds.

2) Types of Bond Markets Based on the Type of Bond:

a) Treasury Bonds
b) Agency Bonds
c) Municipal Bonds
d) Corporate Bonds
e) Savings Bond
f) Corporate Bonds
g) Inflation-Linked Bonds
h) Convertible Bonds
i) Sovereign Gold Bond
j) RBI Bond
Types of Bond Markets Based on the Type of Bond – Explained
Treasury bills, notes, and bonds issued by the Treasury Department are the most important bonds. All other long-term, fixed-rate bonds have their rates determined by them. The Treasury auctions them out to pay for the federal government’s activities.

On the secondary market, these bonds are also resold. They are the safest because the government guarantees them. As a result, they also provide the lowest return. Almost every institutional investor, firm, and sovereign wealth fund owns a stake in them.
These are the bonds that are guaranteed by the federal government.
Different cities issue municipal bonds. They are tax-free. However, their interest rates are slightly lower than corporate bonds. They carry a slightly higher risk than federal government bonds. Cities do default on occasion.
Companies of all shapes and sizes issue corporate bonds. As they are riskier than government-backed bonds, they pay higher interest rates. The representative bank sells them.
The Treasury Department also issues savings bonds. Individual investors are supposed to buy these bonds. They are printed in small enough quantities to be inexpensive to individuals. I bonds are similar to savings bonds, but they are inflation-adjusted every six months.
Companies of all shapes and sizes issue corporate bonds. Since they are riskier than government-backed bonds, they pay higher interest rates. The representative bank sells them.
In such type of bond, both principal amount and interest payments are indexed to inflation. Inflation indexed bonds are an efficient way to counter the inflation risk.
This kind of bond allows its holder the option to convert it into equity based on pre-specified terms.
The Government of India also issues sovereign Gold Bonds. Gold bonds are in form of a security as it in the form of the Government of India stock. It also carries interest rate which is paid regularly and has zero risk of handling that exists in physical gold.
The Government of India decided to issue 7.75% Taxable Bonds, 2018, with effect from January 10, 2018 [2], for enabling resident citizens/HUF to invest in a taxable bond, without any monetary ceiling.
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