What is Bond?/What are the Types of Bond?/Uses of Bond?
Have you ever taken a loan from anyone?
Or have you given a loan to someone?
If you have given a loan to someone or have taken a loan from someone, then you must have known the terms of the loan, understand its burden, and then it will be very easy for you to understand the bond…
So, What is a Bond?
The way when you need money, you either fulfill that need by saving or you take a loan from someone.
In the same way, when the government is hit by a fiscal deficit or money is needed for important works, then the government issues bonds to collect money.
The government issues this for big investors and common people.
The bonds issued are also called ‘Letters of Debit’, as the bonds are in the format of a letter.
In this letter, the face value of the bond or the price is also written and the interest rate available on it is also written.
The coupon rate also refers to the interest rate of the bond.
For how long it is, What should be the price, all these things are decided in advance.
All these things are also written on this letter of credit.
By the way, the tenure of the bond can be from one year to five years or ten years or even more.
And when the bond period is over, you get your money back as per the prescribed terms and conditions.
Private companies can also issue bonds
The government does not have the power to issue bonds alone.
Private companies or the corporate sector can also issue bonds.
The face value and interest rate of a bond are the same as that of a government bond.
The only difference between a government bond and a private bond is that of security.
Government bonds are considered safe to some extent because the bond money is invested in government works.
So the same private bond is considered a bit risky because the future plans of private companies are not known.
Knowing what a bond is, now we know how many types of bonds are there…
Government Bond
When the government needs financial assistance for government work, the government issues a bond.
This bond is called a debenture and it is like a loan.
The money collected from government bonds is invested in government schemes and the responsibility of this money lies entirely with the government.
That’s why government bonds are considered quite safe.
Buying government bonds is seen as a long-term investment.
MUNICIPAL BOND
When the local government or municipal corporation needs money to do its projects, build roads or schools, or for government works, then in such a situation, the local government can also issue bonds.
Such bonds are called municipal bonds.
These are also very safe and get good interest rates on them too.
CORPORATE BOND
Corporate bonds are those which are issued through the private sector.
The corporate sector issues bonds when they need loans.
The interest rate on corporate bonds is high.
In this, you do not get a stake in the company like a share.
The money is given to you along with the interest at the stipulated time.
SECURE BOND
Secured bonds are bonds in which your money is safe.
Meaning if you have invested your money on the bond of a company and that company is continuously running in loss, then even in this situation, you will get your money as per the fixed.
If the company refuses to do so, then you can sue that company.
The company will have to return your money.
That’s why it is called Secure Bond.
INSECURE BOND
Insecure bonds are very risky (RISKY).
In this, if the company goes into a loss or earns a lot of profit and it does not want to return your money, then you cannot take any action against the company.
The terms and conditions in such bonds are very tempting and the interest rate on them is also very high, so people take the risk of investing money in insecure bonds.
Zero-Coupon Bond
The company does not give you any interest in zero-coupon bonds.
In this, profit is earned differently.
If the price value of a bond of a company is Rs 1000 and it is a zero-coupon bond, then you can buy that bond for Rs 900. Your profit on this bond will be Rs 100.
PERPETUAL BOND
People like this type of fund very much.
Prospective bonds do not have many conditions.
You can keep a Prospective Bond for the long term as well as for the short term.
The interest rate is also very good in this.
Its special thing is that you get a stake in the company from the bond you buy.
These are like stocks or equity.
That is, as many bonds as you have bought, you will have ownership of that percentage of the company.
INFLATION-LINKED BOND
In inflation bonds, the interest rate of the bond depends on the movement of inflation.
The interest rate on your bond keeps on increasing and decreasing according to inflation.
CALLABLE BOND
If the company wants to buy back the bonds issued by it before the stipulated time, then it can do so under callable bonds.
If the company earns a good profit in a short time and wants that the loan taken should be returned soon, then it can do it.
In this situation, you will have to return the bond to the company, you cannot refuse to do so.
CONVERTIBLE BOND
In this bond, if you want to take a stake in a company i.e. want to become a shareholder of a company, then you can convert your bond into stock.
If you have some bonds of the company, then you can become a shareholder by converting them into shares.
BottomLine: Bonds are a good way of long-term investment. If you want to invest in bonds, then do research first and after that, you can invest in bonds without fear.
