Fixed Deposits & Bonds

What Is a Corporate Bond?

A corporate bond is a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. When the bond expires, or “reaches maturity,” the payments cease and the original investment is returned. The backing for the bond is generally the ability of the company to repay, which depends on its prospects for future revenues and profitability. In some cases, the company’s physical assets may be used as collateral.

Key Takeaways:

A corporate bond is debt issued by a company in order for it to raise capital. An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds may also actively trade on the secondary market. Corporate bonds are typically seen as somewhat riskier than government bonds, so they usually have higher interest rates to compensate for this additional risk. The highest quality (and safest, lower yielding) bonds are commonly referred to as “AAA” bonds

Types of Bonds:

Most popular type of bonds are mentioned below.

As per the Reserve Bank of India SGBs are government securities denominated in grams of gold. These are the substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by the Reserve Bank of India on behalf of the Government of India. The issue price and redemption price depends on the price of gold as per the IBJA Rate. Here the investor also gets a return in form of Interest Income for every Sovereign Gold Bond investment which is determined at the time of issue. Interest is calculated on the face value amount which is 2.5% per annum. Here the investor receives interest every 6 months till maturity or redemption date. These bonds have a tenure of 8 years and can be redeemed after 5th year.

Companies such as the National Highways Association of India (NHAI), Indian Railways Finance Corporation, HUDCO, Rural Electrification Corporation (REC), National Hydroelectric Power Corporation (NHPC), NABARD and other public sector companies issue these bonds. The interest earned on these bonds is completely tax free in the hands of the investor.

RBI’s Floating Rate Savings Bonds 2020 are bonds issued by the Government of India, with an interest rate of 7.15 per cent. The Bonds carry a floating rate of interest that is reset every six months with the first reset falling on Jan 01, 2021. Here the interest rate is dependent on the interest rate of NSC(National Saving Certificate). The payouts from the Bond are made semi-annually on Jan 01 and July 01 every year. The bonds are issued only in electronic form and held in the Bond Ledger Account (BLA). The BLA is an account with RBI or an agency bank in which the bonds are held.