What Are the Different Types of Bonds
Bonds are also called debt instruments. The issuing or selling bond shall take out a loan from the purchasing body. As per the rules and conditions mentioned in the bond, the bond’s issuer needs to pay the principal amount. At the time of fix intervals, one needs to pay the fixed amount of interests
There is the indenture document, which contains the issuer’s promises and bondholders’ rights. Basically, it carries the terms and conditions with proper detail. Now let’s see the different features of bonds.
1 Maturity- Total numbers of years for outstanding debt.
2 Principal Value- When the maturity date comes then the issuer pay the amount to the bondholder.
3 Cupon Rate- The rate of interests paid by the issuer to the bondholder and the fix times of intervals
Also, with bonds, people can invest their money share market with the Best Stock Market Course in Delhi.
In this blog, we are mentioning the different types of bonds. Let’s have a look at them.
1. Government Bonds
As we know, the bonds issued by a government are debt instruments issued by the state and central government. The primary purpose of issuing such bonds is to raise the money for government projects involved in the development of infrastructure.
There is no risk in government bonds for making the bond default settle with the high developing countries.
Different types of Government Bonds
1 Fix Rates Bonds
- Throughout investment, the rate of coupons will remain the same.
- Coupon rate is mentioned in agreement.
2 Floating Rate Bonds
- With the floating rate bonds, the coupon rates are set.
- When you see the fixed rates bonds losing their value, the interest rate rises. Although fix rate bonds gain weight, the interest rate also increases at the time.
3 Zero-Coupon Bonds
- There is no need to pay an interest rate in this type of bonds
- There is no reinvestment risk in these types of bonds.
4 Sovereign Bond
- These bonds are issued on the behalf of the central government.
- They are suitable to hold the physical gold as the substitute, and also, they can be dominated in the grams of gold.
5 Savings Bonds
- These types of bonds are suitable for long term savings
- There is no risk in such types of bonds also. They pay 7.74% of returns per annum.
2. Government Analysis Bonds
For some specific goals, these types of bonds are issued by back agencies of government. In these types of bonds, one can quickly get attractive offers of coupon payments, although they are pretty riskier than government bonds.
Public Sector Bonds- With the purpose of the country’s growth, these bonds are issued by Public Sector Units (PSU)
3. Municipal Bonds
By municipal corporations, municipal or muni bonds are issued. The municipal corporations are the government bodies who issued these bonds to build public infrastructure like roads, bridges, hospitals, schools, etc.
Basically, types of bonds are two
1 General Obligation Bonds
- For infrastructure financing, these bonds are used.
- From the revenue of municipality projects and tax, the repayment and interest rate are handled.
2 Revenue Bonds
- For some particular kinds of projects, these bonds are raised.
- The repayment and interest rate are created from the revenue made from some specific projects. Also, the component of risk is more here.
4. Corporate Bonds
Like the government, many municipal corporations and backed government agencies need funds for performing various activities. The fund may be required for expansion also.
The investment securities are fixed in corporate bonds. It can be categorized on three bases.
Credit Quality ( Ratings are measured which are given by rating agencies)
Maturity (long term, short term, and intermediate-term)
Indenture component ( Feature of Call)
Other Types of Bonds
Apart from the aforementioned types, there are also other types of bonds.
1 In advisor Situation Bonds issued by Government- Climate bonds, War bonds, etc
2 Special Provision Indenture Bonds- Sinking funds, set up and set down bonds, and Extendable reset bonds.
3 International Investing Bonds- Samurai Bonds, Yankeen bonds, etc
4 Tax Saving Bonds
Final Say
This article mentioned the different types of bonds with their detailed information. Rather than investing in bonds, one can also invest in the shares and share market after getting the proper knowledge of the share market, and for this, you can join the Best Share Market Institute in Delhi.
