PRESENTED BY ASHIMA ZAKKEER

A bond is a long term debt instrument or security issued by government or organizations , under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity.

FEATURES OF BONDS

INTEREST RATE Interest rate is fixed and known to bondholders Interest paid on a bond is tax deductible. Interest rate is also called coupon rate.

Face Value

Face value is also called par value. A bond (debenture) is generally issued at par value and interest is paid on face value.

MATURITY A bond is generally issued for a specified period of time and its repaid on maturity.

REDEMPTION VALUE The value that a bondholder will get on maturity is called redemption, or maturity value . A bond may be redeemed at par or at a premium or at a discount

MARKET VALUE The price at which it is currently sold or bought is called the market value Market value may be different from par value or redemption value.

Different Types of Bonds

Redeemable and Irredeemable bonds
Participating Bonds Convertible and Non convertible bonds

Sinking Fund Bonds

Serial Bonds Mortgage or Secured Bonds Collateral Trust Bonds Income Bonds Adjustment Bonds

CONTI.
Assumed Bonds
Joint Bonds Guaranteed Bonds

Redeemable and Irredeemable bonds

A Redeemable bond is the one which has been issued for a certain period on the expiry of which its holder will be repaid the amount with or without premium. A bond without redemption period is termed as an irredeemable bonds and these may be repaid either in the event of winding up of a company or the happening of certain specified uncertain or contingent events

Participating Bonds
Participating Bonds are those bonds which have a

guaranteed rate of interest but may also participate in earnings up to an additional specified percentage. Usually companies with poor credit positions issues these type of bonds

Convertible and Non convertible bonds

Convertible Bonds are bonds which the holder can at

his option convert the bond into predetermined number of shares of common stock at a predetermined price. Bonds which cannot be converted at the option of holders are called non convertible bonds.

Sinking Fund Bonds

Sinking Fund bonds arise when the company decides to retire its bond issue systematically by setting aside a certain a certain amount each year for the purpose. The payment usually fixed annual rupees amount or percentage installment, is made to the sinking fund agent and he in turn will use this money to call the bonds annually at some call premium or to purchase them on the open market if they are selling at a discount

Serial Bonds
Serial bonds are financial bonds that mature in

instalments over a period of time These bond issues consist of a series of blocks of securities maturing in sequence and the coupon rate can be different.

MORTGAGE OR SECURED BONDS

A bond secured by a mortgage on one or more assets. These bonds are typically backed by real estate holdings and/or real property such as equipment. In a default situation, mortgage bondholders have a claim to the underlying property and could sell it off to compensate for the default.

Collateral Trust Bonds

A bond that is secured by a financial asset - such as stock or other bonds - that is deposited and held by a trustee for the holders of the bond. If the issuing company were to default on the debt obligation, the debt holders would receive the securities held in trust, like collateral for a loan.

Income Bonds
Income bonds are those bonds on which the payment of interest is mandatory only to the extend of current earnings They are usually issued in reorganization or recapitalization to replace other securities.

Adjustment Bonds
Adjustment bonds are leading types of income bonds

usually issued at the time of reorganization of companies in financial difficulties and interest is payable only if earnings permit.

Assumed Bonds
Assumed bonds are issued in respect of a company

that has been acquired by another by way of merger or as a result of the reorganization. In taking over the property of the original issuer the debts of the issuer are assumed by the successor company.

Joint Bonds
Joint bonds are loan certificates that are jointly

secured by two or more companies The advantage is that investor get additional security of another corporations' pledge

Guaranteed Bonds
Guaranteed bonds are those bonds which are guaranteed by the firm other than debtors. Some assure both principal and interest whereas some assure interest only

Yields
Coupon yield: the interest paid on the principal based on

the coupon rate. Current yield: yield based on interest payments with respect to the purchase price of the bond (discount, premium). Yield to maturity (YTM): estimates the total amount that one can earn over the total life of the bond.
YTM = coupon yield + prorated discount or premium (face value + purchase price) / 2

Reasons For Issuing Bonds

To reduce the cost of capital
To gain the benefit of leverage To Effect Tax Saving

To widen the sources of funds

To preserve control

RISKS IN BONDS INVESTMENT

BUSINESS RISK
PURCHASING POWER RISK INTEREST RATE RISK