Bond is a debt securityin which the authorized issuer owes the holders a debt and is obliged to pay interest and repay the principal at a later date, termed maturityit is a formal contract to repay borrowed money with interest at fixedintervalsThe holder of bond is called lender ( creditor )The issuer of the bond is called borrower (lender) interest is termed as coupon
WHAT IS A USE OF A BOND ? Bonds provide the borrower with external funds to financelong-term investments In the case of government bonds, to finance currentexpenditure. Lender gets risk free Investment.
BONDS AND STOCKS ARE BOTH SECURITIES BUT THERE IS A MAJOR DIFERENCE IN BOTHStockholders have an equity stake in the company ( they are owners)Bondholders have credit stake in the company ( they are lenders )Bonds have maturity time ( redemption time )Stocks may be outstanding indefinitely.
TYPES OF BONDS INFRASTRUCTURE BONDSCAPITAL GAINS BONDSZERO COUPON BONDS
INFRASTRUCTURE BONDS They are same as other bonds available in investment marketDifference is only this the funds collected through the sale of these bonds is used forthe infrastructural development, highway projects, railways project. Have fixed rate of interestHave tax deduction upto 20,000 for 1 financial year ( 80 CCF )Long term investment , have maturity period 10-15 years Pan card , address proof , demat ac is required to apply.Only govt. companies can issue theseMajor provider IDFC ( infrastructure dev finance company )
CAPITAL GAINS BONDSSect 54EC:•Any person•Tax exemption•Bonds issued by: 1. NHAI 2. REC•Payment 6 months•Lock in 3year•GUARANTEED RETURNS
ZERO COUPON BONDS BONDS DEEP DISCOUNT DISCOUNT MATURITY LONGER MATURITY ->LESSER ISSUE PRICE NO CASH INFLOW