What are the different types of bonds?
The various types of bonds available in the market can be broadly classified based on the issuer and structure of the bond.
Bond classification based on issuer-type:
|They are issued by the central or state government to finance developmental activities.
|Public Sector Bonds
|They are issued by nationalised companies where majority equity ownership is held by the government.
|They are issued by companies to borrow money from the public. This includes bonds issued by NBFCs
|They are issued by banks to raise capital for lending
Bond classification based on structure:
|Fixed Rate Bonds
|They have a fixed coupon/interest rate that is paid at fixed intervals till maturity.
|Floating Rate Bonds
|Also known as Floaters, their interest rate is linked to a benchmark such as MIBOR, RBI repo rate, etc.
|They are issued at a discount (to their face value) and do not pay a periodic interest/coupon rate. They are redeemed at par; the difference between the discounted issue price and face value represents the return on investment.
|They are hybrid bonds that allow investors to convert their units into shares in the company based on a pre-determined ratio.
|They provide protection against inflation, wherein the principal amount and interest payments are linked and indexed to inflation.
|Interest income is tax-free in the hands of investors