Professional Documents
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FINANCE
TYPES OF BONDS AND THEIR PROPERTIES
P. Ashok Kumar
PGID: 1821022
INTRODUCTION
• Issued by corporation
• Creditors of the company
• Return is in the form of interest
• Interest called as coupon rate
• Issued denomination of Rs 100, 500, 1000 etc.
TYPES OF BONDS
GOVERNEMENT
BONDS
BONDS
CORPORATE
BONDS
TAX SAVING
BONDS
• GOVERNMENT BONDS – These bonds are issued and backed by the
government and are considered relatively low risk for a medium to long
term investment.
• CORPORATE BONDS – Issued by corporate entities to fund new ventures,
expansion plans or other initiatives and capable of providing better interest.
Here, the risk involved is also higher as these bonds generally have a low
bond rating as compared to government bonds by rating agencies.
• As a thumb rule, higher bond rating is considered to be a safer investment.
• TAX SAVING BONDS – these bonds are issued by RBI since 2003 and are
available at many public and private banks. The interest rate offered is
currently 8% with a minimum deposit of Rs 1000/- with a 6 year maturity
period. The bonds are non transferrable and the interest earned on these
bonds is taxable. However, these bonds are exempted from wealth tax
• While looking to invest in a bond, it is better to select secured bonds over
unsecured bonds. Secured bonds come with collateral (backed by a specific
asset) to ensure that your investment can be repaired bu the issuer
• On the other hand, unsecured bonds are backed only by the credit
worthiness of the issuer and there is no collateral asset involved
• Secured bonds are a safer option as the bond issuers can ask for selling the
collateral assets in a case of a payment default and even during
liquidation(bankruptcy), bond holders need to get paid first
• In unsecured bonds, there is no such security and investment might have to
be recovered using legal course in case a company goes bankrupt. So when
going for unsecured bonds, it is important to be well aware of the issuer’s
credibility and repayment capacity
• Secondly, you should also evaluate your risk taking capacity before deciding
on what bond to buy. Investment grade bonds get a credit rating between
AAA and BBB and come with a low risk of default
• On the other hand, bonds with credit rating lower than that have higher
risks but also carry the possibility of higher returns. These are known as junk
bonds
OTHER TYPES OF BONDS
• Serial bonds
• Sinking fund bonds
• Registered bonds
• Mortgage bonds
• Corporate bonds
• Convertible bonds
• Zero coupon bonds
• Municipal bonds
• Government bonds
• Fixed rate bonds
• Floating rate bonds
• War bonds
• Perpetual bonds
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