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Investment Bonds
Investment avenues are plenty for those who are interested in reaping the benefits of their savings and investments. Bonds are debt instruments that investors can profit after maturity of the instrument. Organizations borrow funds in the way of issuing debt securities called bonds to investors. These debt securities have a maturity period and pay a specific interest rate on the mentioned principal amount to the holders of the bonds. Typically, all bonds have a maturity period of more than one year, yet the maturity time and the interest rates may differ from each other. Examples of bonds can be commercial papers or treasury bills or other money market instruments.
Investment bonds can be of various types:
Based on the Variability of the Coupon:
- Zero Coupon Bonds: These investment bonds are bonds that are issued at a discount on the face value and the time of maturity, the holders of the bonds are paid the principal or the face value of the bonds. Issue price of the zero coupon bonds and the redeemable price give the interest required to the holders.
- Strips of Treasury: These investment bonds are available particularly in the US. These bonds are coupon paying bonds that use cash flows to create zero coupon bonds. The firms that buy the treasury strips, sell the zero coupon bonds in the secondary market with different interest rates and different maturity rates.
- Floating rate bonds: These investment bonds do not have a fixed coupon rate that is mentioned as it is dependent on the fluctuations of the benchmark rate.
Based on the Variability of the Maturity :
- Callable Bonds: These investment bonds give the issuer of the callable bond the right not the obligation to modify the tenor of the bond or the call option. The issuer has the ability to redeem the bond completely or partially before the actual maturity date.
- Puttable Bonds: The investment bonds of puttable bonds have the right to redemption from the issuer of at any point of time before the maturity date. The holder can exercise the put option, partially or fully.
- Convertible Bonds: These investment bonds give the holder the option for conversion of the bond into equity which is the same value as the bond, of the firm issuing on certain prescribed terms.
Based upon the Repayment of the Principal:
- Amortizing Bonds: Amortizing bonds are investment bonds wherein the issuer or the borrower repays the principal amount with the coupon over a period of time mentioned in the life of the bond, by the maturity date of the bond.
- Sinking Fund Provision bonds: These investment bonds have the provision where the issuer of the bond is required to retire an amount of the outstanding bonds each year, by exercising the ability to buy from the market or create a separate fund that calls the bonds for the sake of the issuer.
Investment bonds are beneficial for those who are interested in making a certain amount of interest on their deposits and saving tax at the same time. Companies can consider investing in bonds as they are less risky and not dependent on the stock market.
MBA&Co. has been engaged in consulting companies and individuals about investment bonds. Freelance MBA consultants can also be a part of the team of consultants by undertaking projects related to investment bonds available online.
