bond investment: Learn with ETMarkets: Various nomenclatures used in bonds

Bonds are an exceptionally good option for investors falling in distinct categories of investors. Learning about the features, pros, and cons of bonds will help you take informed decisions.

Below are the common nomenclatures used in bonds:

Bonds – is a debt security under which an issuer owes a bondholder a debt. The issuer is obliged to pay a bondholder the predetermined interest at predefined intervals (monthly, quarterly, semi-annual, or annually) and the principal (face value) at the maturity date.

Issuers – are the entities including the private companies and governments who raise money from the investors by issuing bonds of several types.

Issue date – is the first date on which an issue offered by an issuer can be bought. For a new issue, it is the expected date on which the security will be allocated to the interested investors participating in an offering.

Principal – in bonds also known as face value, maturity value, and par value is the amount an issuer borrows from a lender to be repaid after the agreed period subject to certain terms.

Coupon (in bonds) – is the rate of interest payable by the borrower to the lender at a fixed interval typically until maturity.

Coupon frequency – is the frequency at which a fixed income security pays interest to an investor (monthly, quarterly, semi-annually, or annually).

Face value/par value – is the stated value of an investment that an issuer pays at the end date of maturity applicable in case of bonds, some stocks, and other securities.

Maturity – Each bond comes with maturity. They can be categorised into short-term (1 to 5 years), intermediate term (5 to 12 years), and long-term bonds (more than 12 years).

Credit Rating – is the rating provided by a rating agency to bond issuers based on their creditworthiness.

Call (in bond) – The Call option in bonds refers to an option where the bond issuer can call back the bond by paying back the principal amount to the bondholder/investor.

Put (in bonds) – A Put option in bonds refers to an option that allows the bondholder to demand back the principal from the issuer before the bond matures for any reason.

Yield to Maturity – is the rate of return provided to an investor in case the investment is held till the maturity date.

Default – in bonds is the condition when an issuer fails to repay the borrowed money back to the investors which can be the agreed interest or principal due to any reason.

Part 1: What are Bonds – Meaning, Types, Benefits & How to Invest

Part 2: 8 different types of bonds to invest in India

Part 3: These are 4 key players in the bond market

(This is an educational series about Bonds, types of Bonds, benefits, and various other details will be covered in the upcoming articles)

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