Bond

Bond is a long term debt instrument or security. Bonds issued by the government do not have any risk of default.

• The government will always honor obligations on its bonds. Further, bonds of the public sector companies in India are generally secured, but they are not free from risk of default.

• The private sector companies also issue bonds, which are also called debenture in India.

• In case of bonds or debentures , the rate of interest is generally fixed and known to investors.

• The principal of a redeemable bond or bond with a maturity is payable after a specified period , called maturity period.

What are the features of a bond or debentures ?

Following are the features of bonds:

1. Face Value

Face value is called par value . It is generally issued at a par value of ₹100 or ₹1000 , and interest is paid on face value.

2. Interest rate

Interest rate is fixed and known to bondholders or debenture holders . Further, the interest paid on a bond/debenture is a tax deductible. The interest rate is also called the coupon rate . Coupons are detachable certificates of interest.

3. Maturity

It is generally issued for a specified period of time. It is repaid on maturity.

4. Redemption Value

The value that a bondholder or debenture holder will get on maturity is called redemption or maturity value. Furthermore, a bond or debenture may be redeemed at par or premium (more than par value) or a d=at a discount (less than part value).

5. Market Value

A bond or debenture my be traded in a stock exchange. Further, the price at which is is currently sold or bought is called the market value of the bond or debenture. Market value may be different from par value or redemption value.

Bonds or debentures are one and the same.