Bonds : FAQ

What are fixed rate Bond?
These Bonds carry fixed rate of interest which is declared at the time of issue and remains same till maturity.

What are floating rate Bonds?
These Bonds carry interest rate which is linked to independent reference rates, independent index, commodities etc.and the rate is fixed for next period at the beginning of the period itself.

What are Deep Discount Bonds?
This bond is issued at a discount to the face value. The face value is paid at the maturity. These bonds are also know as Zero coupon bonds or "Zeros".

What is a coupon Rate?
It is the rate of interest which the issuer pays on the principal/paid up value of the Bond.It is fixed at the time of issuance of the bond.

What is maturity Date ?
It is the date on which the Bond matures. Generally Bonds mature in a bullet form with a single repayment on single date. But some bonds have split or part redemptions with varying repayment dates.

What are interest payment dates?
The dates on which the issuer pays out interest on the paid up value of the Bonds .

What is interest payment frequency?
It is the frequency of payment of interest on the bonds. It could be monthly, quarterly, semi annually, annual or cumulative at redemption.

What is yield to maturity?
It is average rate of return on bond if it is held to its maturity date and if all cash flows are reinvested at the same rate of interest.

What is liquidity?
The ease with which securities can be sold and converted into cash is called liquidity.

What is maturity?
The point at which the term of investment ends and proceeds are paid out.

What is risk?
Possibility that one would receive less from investment than what has been put into it.

What are gilts?
Fixed interest securities issued by the Government to raise money for public expenditure. In India these securities are issued by RBI on behalf of Govt. of India by auction process.

What is commercial paper?
It is short term unsecured instrument issued by corporate bodies (both public and private) to meet short term requirement of working capital. Maturity varies between 3 months to one year. These can be issued to any individual, bank, company whether in India or abroad.

What is a certificate of deposit?
These instruments are issued by scheduled commercial banks excluding regional rural banks. These are unsecured, negotiable, promissory notes having maturity of 91 days to one year.

What are Corporate Debentures?
The corporate debentures are issued by Indian companies, whether secured or unsecured, having maturity of 18 months and above. These are issued in certificate form and are transferable instruments.

What are public sector bonds?
These bonds are medium and long term obligations issued by public sector companies where the Government shareholding is 51% and more. Most of PSU bonds are in form of promissory notes transferable by endorsement and delivery. No stamp duty or transfer deed is required at the time of transfer of bonds transferable by endorsement.

What are tax saving bonds?
Tax saving bonds offer tax incentive under section 88 .

What are growing interest bonds?
These bonds offered option of encashment at the end of every year on the holding period. As an encouragement to hold the bonds for a longer period the interest payable on these bonds increases with the duration of the bonds.

What are education bonds?
Investment in these bond could result in return in form of scholarship to children.

What are deferred income bonds?
In these there was an option to receive interest after deferment to certain period. It is a good investment option for those who are to retire soon.

What are inflation hedge bonds?
These bonds would give return at rate linked to rate of inflation. The rate of return could fluctuate with fluctuation in the rate of inflation. If the rate of return is expected to be higher than rate of inflation this bond would serve as perfect tool for hedge against inflation.