Bonds in Finance - Definition

A bond is a type of debt or a loan where the borrower could be a bank, an NBFC or the government and the lender or the investor is any individual or a corporation. The borrower is the one who issues the bonds and the lenders are the investors. The investors purchase these bonds to gain intersests on their capital. A bond has an issue date and a maturity date, at which the complete principle value will be returned back to the investor. The rate of interest given over these bonds is also called coupon rate.

Bond Term​	Meaning
Issuer	Borrower
​Investor	Lender
​Principle, Face Value, Par Value	Amount Borrowed​
​Coupon Rate	Interest Rate
Coupon	Interest Payment
Maturity	Due Date
Term	Term Until Maturity/Due Date
Yield to Maturity	​Annualized return on Bond Investment
​Market Value	Current Price

Key Takeaways / Features / Characteristics

• Bonds are rated by credit rating agencies

• Bonds have a coupon/interest payment frequency, that is annualy, semi annualy, quarterly or monthly

• Bonds can be secured or unsecured

• Investors hold bonds till maturity and get their entire principle back

• Or these bonds can also be traded in secondary markets (Very less liquidity)

• A bond is basically a loan, which an investor provides to a company or a government

• The company issuing bonds may also go bankrupt and default on your bonds (however it is uncommon)

• Secured bonds maturing in near future can also be kept as collateral for taking loans

• Government bonds are safer and provide less interest whereas corporate bonds have more risk and pay higher interest.

• Bonds with longer maturity term pay higher interest

• Bonds is a Capital Market instrument