Bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holder a debt and depending on the terms of the bond is obliged to pay them interest and/or to repay the principal at a later date, termed the maturity.
Interest is usually payable at fixed intervals, thus a bond is a form of loan, the holder of the bond is the lender (Creditor) the issuer of the bond is the borrower (debtor) and the coupon is the interest.
Types of Bonds
- Fixed-rate bonds: Interest remains constant
- Floating-rate bond: Has variable interest rates
- Zero-coupon bonds: They do not bear interest
- Inflation Indexed bonds: They are indexed to Inflation
- Securitized bond: They are backed by an underlying cash flow from another asset
- Sovereign bonds: They are issued by National Government
- Corporate bonds: Bonds issued by companies
- Gilts: Bonds issued by the Government of UK
A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital.
Type of Debentures
- Registered debentures
- Bearer debentures
- Secured debentures
- Unsecured debentures
- Redeemable debentures
- Perpetual debentures
- Convertible debentures
- Non-Convertible debentures