Bonds are a kind of loan you offer to its issuer upon which you get interest. When the bond reaches maturity, the issuer returns your money, principal and interest. The bond issuer uses the money raised from bonds to undertake various activities such as funding expansion projects, refinancing existing debt, undertaking welfare activities, etc. Bonds are less risky compared to market-linked instruments like equities.
When we talk about fixed-income instruments, bonds can’t go unnoticed. For conservative investors, who don’t want to take too many risks, bonds can be an ideal instrument of choice, offering assured returns. Over the years, India has opened its bond market to woo international investors and attract foreign inflows.
Terminology Used For Bonds
Understanding common bond terminologies can help you better understand this financial instrument and make prudent investment decisions. Some standard terms associated with bonds are:
- Coupon
Coupon is the interest that you get as a bondholder. The amount is paid on a specific schedule which could be monthly, quarterly, bi-annually or annually.
- Face value
Face value denotes the issue price of the bond. Face value of most Indian bonds is Rs. 1000.
- Market value
The cost at which the bond is sold in the market is called market value. This value depends on the prevailing economic conditions and the business of the bond issuer among other things.
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