Definition of Bond

Bonds are instrument of indebtedness of the issuer (Usually corporate or governmental agencies) to the holder (creditors). Put it simple, Bond is a promise made by issuer to repay the amount of principal and interest on a specified date known as maturity date.

These are considered as long term sources of raising fund as maturity period for most of the bonds, remains more than 1 years. A fixed rate of interest called ‘coupon’ is paid on these instruments.

Bonds are commonly referred as fixed income securities as they yield a fixed income in form of interest. However, some bonds do not pay interest instead they are issued at a price lower than par value and redeemed at par. So the difference between issued price and par value becomes the interest for these types of bond.

Most of the bonds are freely traded in stock markets while some are traded only Over The Counter OTC.

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