BOND/NCD/FD

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BOND/NCD/FD

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BONDS

A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer. Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments made by the borrower.

KEY TAKEAWAYS

  • Bonds are units of corporate debt issued by companies and securitized as tradeable assets.

  • A bond is referred to as a fixed income instrument since bonds traditionally paid a fixed interest rate (coupon) to debtholders. Variable or floating interest rates are also now quite common.

  • Bond prices are inversely correlated with interest rates: when rates go up, bond prices fall and vice-versa.

  • Bonds have maturity dates at which point the principal amount must be paid back in full or risk default.

  • G-Sec Bonds, Corporate Bonds, Capital Gains Tax Bond(54EC), Gold Bonds, Perpetual Bonds(Tier 1 and 2) etc. Various kinds of bonds are available and trading on bond platform.

CORPORATE FIX DEPOSIT


The deposit placed by investors with companies for a fixed term carrying a prescribed rate of interest is called Company Fixed Deposit. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Deposits thus mobilised are governed by the Companies Act under Section 58A. These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option.