Introduction to Bonds
A bond or a debenture is basically a loan. Every time an amount is invested to a bond or debenture it is lent to an issuer who is in need of fund. All companies, financial institution, Government bodies generally borrow money through several means; one of them is by issuing bonds or debentures. If the borrowing entity is a Government or a quasi Government institution, the instrument is referred to as a bond- otherwise it is known as a debenture though, nowadays in common parlance, this fine distinction is rarely maintained.
Bonds can be issued for specific period of time; the period can range from short term to long time like 20-30 years. The period of bond must invariably be defined at the very commencement of the issue and at the end of the period; bond should be redeemed that is the money borrowed would be repaid to the lender.
Government and corporate sector are the two main issuers of the bond. Government issues bonds (treasury bills and Government securities) for a medium term to very short- term like even for a few weeks. Corporate bonds are generally for periods upwards for one year. Government borrowings (central, state or local) account for bulk of the bond market and are mostly subscribed to by wholesale investors like banks and mutual fund. On the other hand, corporate bonds are being aggressively marketed nowadays, among retail investors.
Whenever an amount is invested in bonds, the issuer is essentially entering into a legally binding agreement to compensate with interest payments at periodic intervals and to repay the original sum (principal) in full on a stipulated date, which is the day on which the bond matures
A bond or a debenture is basically a loan. Every time an amount is invested to a bond or debenture it is lent to an issuer who is in need of fund. All companies, financial institution, Government bodies generally borrow money through several means; one of them is by issuing bonds or debentures. If the borrowing entity is a Government or a quasi Government institution, the instrument is referred to as a bond- otherwise it is known as a debenture though, nowadays in common parlance, this fine distinction is rarely maintained.
Bonds can be issued for specific period of time; the period can range from short term to long time like 20-30 years. The period of bond must invariably be defined at the very commencement of the issue and at the end of the period; bond should be redeemed that is the money borrowed would be repaid to the lender.
Government and corporate sector are the two main issuers of the bond. Government issues bonds (treasury bills and Government securities) for a medium term to very short- term like even for a few weeks. Corporate bonds are generally for periods upwards for one year. Government borrowings (central, state or local) account for bulk of the bond market and are mostly subscribed to by wholesale investors like banks and mutual fund. On the other hand, corporate bonds are being aggressively marketed nowadays, among retail investors.
Whenever an amount is invested in bonds, the issuer is essentially entering into a legally binding agreement to compensate with interest payments at periodic intervals and to repay the original sum (principal) in full on a stipulated date, which is the day on which the bond matures