TYPES OF BONDS

CORPORATE BONDS
Corporate bonds are bonds issued by
companies. Companies issue corporate
bonds to raise money for a variety of
purposes, such as building a new plant,
purchasing equipment, or growing the
business. Corporate bonds are debt
obligations of the issuer—the company
that issued the bond.
Example - an investor may pay $800 to purchase a
five-year, zero-coupon bond with a face value of
$1,000. The company pays no interest on the bond for
the next five years, and then, at maturity, pays $1,000—
equal to the purchase price of $800 plus interest, or
original issue discount, of $200
GOVERMENT BONDS
A government bond is a debt security issued
by a government to support government
spending and obligations. Government bonds
can pay periodic interest payments called
coupon payments. Government bonds issued
by national governments are often
considered low-risk investments since the
issuing government backs them.

Example - The different offerings of the securities are Treasury Bills,

Treasury Notes, Treasury Bonds, Treasury Inflation-Protected Securities
(TIPS), Floating Rate Notes (FRNs), Series I Savings Bonds, and Series EE
Savings Bonds.
 ZERO COUPON BONDS
Zero coupon bonds are bonds that do not pay interest during
the life of the bonds. Instead, investors buy zero coupon
bonds at a deep discount from their face value, which is the
amount the investor will receive when the bond "matures" or
comes due.

Example - you might pay $3,500 to purchase a 20-year

zero coupon bond with a face value of $10,000. After 20
years, the issuer of the bond pays you $10,000. For this
reason, zero coupon bonds are often purchased to meet
a future expense such as college costs or an anticipated
expenditure in retirement.
 CONVERTIBLE BONDS
A convertible bond is a fixed-income
corporate debt security that yields interest
payments, but can be converted into a
predetermined number of common stock or
equity shares. The conversion from the
bond to stock can be done at certain times
during the bond's life and is usually at the
discretion of the bondholder.
Example - A convertible bond's conversion ratio specifies how many shares of common
stock it can be redeemed for. The higher the ratio, the more shares the bond is worth. For
instance, a 5:1 convertible bond is redeemable for five shares, a 3:1 is redeemable for three
shares, and so on
 INFLATION INDEX BONDS
It is a type of bond that is designed to protect investors
from the effects of inflation. The interest rate is linked to an
index, such as the Consumer Price Index (CPI) and is
adjusted intermittently to keep pace with inflation. This
type of bond is an attractive investment to preserve the
purchasing power of finance over time.
Such bonds are a kind of debt security in which the face
value of the bond rises with inflation and falls with deflation,
as measured by an official price index. The real return on
the bond is equal to the coupon rate minus the rate of
inflation.
Example
The value of an inflation-indexed bond is calculated by
adding the face value of the bond to the product of the
the inflation is 2%, and you decide to invest Rs
change in the index since issuance and a constant called
the gearing ratio. The gearing ratio is generally close to one. 1,00,000 in these bonds for two years at a coupon
rate of 4%. You will earn interest on Rs 1 lakh for a
normal bond, but for this bond, you will earn interest
on Rs 1,02,000 as it is adjusted for inflation.
JUNK BONDS
Meaning
A junk bond, also known as a speculative-grade
bond, is a high-yielding fixed income security
with a high risk of default on payment. When you
buy bonds, you're lending money to the bond
issuer—a company or a government entity—that
promises to pay you back with interest when the
bonds mature.

Example
Notable businesses with credit ratings that give
them "junk" status include: Ford (F 0.0%): Ford
has been rated as investment-grade in the past,
but the company lost its investment-grade
ratings in 2020 due to the COVID-19 pandemic
and global economic collapse.
 CALLABLE BONDS

Callable or redeemable bonds

are bonds that can be
redeemed or paid off by the
issuer prior to the bonds'
maturity date. When an issuer
calls its bonds, it pays
investors the call price
(usually the face value of the
bonds) together with accrued
interest to date and, at that
point, stops making interest
payments.
EXAMPLES
SAY COMPANY XYZ ISSUES A CALLABLE
BOND OF RS. 1000 PER UNIT ON 1ST
JANUARY 2022. THE COMPANY STIPULATES
A CALL PROTECTION PERIOD FROM 1ST
JANUARY 2022 TO 1ST JANUARY 2024. THE
BOND HAS A MATURITY OF FIVE YEARS AND
THE INTEREST RATE IS 8%.
 PUTTABLE BONDS
Puttable bond (put bond, putable or retractable
bond) is a bond with an embedded put option.
The holder of the puttable bond has the right, but
not the obligation, to demand early repayment of
the principal. The put option is exercisable on one
or more specified dates.
Example - Company ABC issues puttable bonds
with a face value of Rs. 100 with ten years
maturity period. The coupon rate is 4.75%, and
the current interest rate is 4%. The company
provides the investors with a put option that can
be exercised after the first five years
 PERPECTUAL BONDS
Perpetual bonds, or “perps”, are bonds with no maturity
date. While perpetual bonds pay interest like other bonds,
the issuer does not repay the principal amount on
maturity. In other words, perpetual bonds pay interest till
eternity. Many investors consider perpetual bonds a type
of equity instrument rather than debt.

Example - Consols that were issued by the United States

and the UK governments. War bonds issued by a number
of governments to finance war efforts in the first and
second world wars. The oldest example of a perpetual
bond was issued on 15 May 1624 by the Dutch water board
of Lekdijk Bovendams.
 DEFERRED BONDS
A deferred interest bond, also called a deferred coupon bond,
is a debt instrument that pays all of its interest that has
accrued in the form of a single payment made at a later date
rather than in periodic increments.
EXAMPLE
A common type of a deferred interest bond is a zero-coupon bond
(z-bond), which pays no interest at all but offers appreciation in
bond value through the par value. The difference between the
purchase price and face value repaid at maturity is the interest
earned on the bond for the investor.
 SOVEREIGN BONDS
Sovereign bonds are debt securities issued by a
national government to raise funds for various

BONDS
purposes, such as financing government
spending, infrastructure projects, and debt
refinancing. Governments issue sovereign bonds
to meet their financial needs and maintain
stability in the financial market.
Example - However, foreign currency-
denominated bonds expose both the issuer and
the investor to currency risk, which arises from
fluctuations in exchange rates. Examples of
foreign currency-denominated sovereign bonds
include Eurobonds, Samurai bonds, and Yankee
bonds.
FOREIGN CURRENCY
BONDS
A foreign currency
convertible bond (FCCB) is
a type of convertible bond
issued in a currency
different than the issuer's
domestic currency. In other
words, the money being
raised by the issuing
company is in the form of
foreign currency.
Example
a US dollar-denominated
bond issued in the US market
by an issuer that resides
outside the United States.
Foreign bonds denominated in
US dollars are known as
Yankee bonds, those
denominated in yen as
Samurai bonds, and those
denominated in Chinese yuan
as Panda bonds.
 EURO BONDS
A Eurobond is a fixed-income debt instrument that allows entities to raise
funds in a foreign currency. It is usually a long-term bond ranging from 5
to 30 years. The word euro stands for the currency in which the bond is
denominated and not euro currency in particular.

Example-Eurobonds are the bonds denominated in a currency other

than that of the country in which they are issued. A bond denominated
in Japanese Yen and issued in the UK, or a bond denominated in US
dollars and issued in France or the UK are examples of Eurobonds.
 FLOATING RATE NOTES
Businesses can make effective products, provide quality services and ensure their
customer experience is supreme. However, one thing that is usually missing when
looking at a company’s success is their cash flow or how much capital they have to
expand. Expansion is the fundamental factor for a company to ensure sustainability
and increased profitability. If a company does not expand, it becomes stagnant
when its competitors find new customers, new territories, and new opportunities to
grow their business. One more factor which is influenced by the expansion of a
company is its stock price. If investors see no growth potential for a company
shortly, they avoid buying its shares leading to the prices trading sideways.

Example- you can buy a bond of Rs 10,000 with a coupon rate of 5%. In the case
of such a bond, you will be paid an annual interest amount of Rs 500 by the bond
issuer.
THANK YOU

Swati Tiwari