Bonds and the Bond Market in India
What a Bond Is
A bond is a loan you give to a government or company in return for regular interest and repayment of the principal on a fixed date.
When you buy a bond, you are lending money. The borrower, called the issuer, promises to pay a fixed rate of interest, the coupon, and return your principal at maturity.
Key terms
Face value is the amount repaid at maturity; the coupon rate is the yearly interest as a share of face value; maturity is the end date.
Who issues
Governments issue bonds to fund deficits, and companies issue bonds to fund expansion.
Why investors buy
Bonds give more predictable income than shares, and are used to balance a portfolio.
An investor lends ₹1 lakh for ten years at 7 per cent and receives ₹7,000 a year, then gets back the ₹1 lakh.
Issuers can default, and prices move.
- A bond is a loan.
- The coupon is the interest.
- Maturity is the repayment date.
- Bonds provide predictable income.
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