What is a bond: highlights

So, what is a bond? In a business environment, this concept is covered by issuing debt securities, the main sign of which is the obligation of the person who issued it, at a certain point to pay to its holder the amount indicated on it, and interest (for coupon documents). Unlike stocks, the return on them is fixed. The issuer of a bond is called an issuer. In its capacity can act organizations, administrations of executive authorities of different levels, foreign companies and entire countries .

Issue of bonds can be carried out for a different period - from one year to several decades. The one who possesses it is called the holder of this document. Unlike a conventional loan, transferring the rights of claim for such a debt does not require a large clearance procedure. Purchase of bonds and their sale to maturity can be made repeatedly. If you compare with other equity securities - shares, you can distinguish the main difference. What is a bond is the creditor's property right to demand the return of the amount paid plus the interest paid. It does not allow the holder to become the owner of the share of the company that issued it, and take part in the activities of the issuing company.

In addition, bondholders have the pre-emptive right to repay the loan with respect to holders of shares entitled to dividends. The same principle is maintained in the event of the issuer's bankruptcy. Analyzing with this Point of view, what is a bond, we can conclude that this is a more reliable security than a share. Especially if it produced some stably developing state with good assets. In some situations, shares and bonds can be converted.

Like any securities, they come in different types depending on certain characteristics. What is a bond, if we consider it on these grounds? It can be different by type of issuer and by loan maturity, as described above. And the second characteristic can vary not only by the duration of the period, but also by the possibility of its change. In particular, there may be securities with a fixed maturity date and indefinite. Depending on the degree of ownership of bonds, they can be bearer and registered (when the holder is indicated on the document and in the logbooks).

These issue debt securities can be subdivided into target (for financing of certain projects) and ordinary. The type of bond placement can be free and coerced Ly. There is also a classification of the form of repayment of borrowed funds (in kind and in cash). The debt obligation can be extinguished by one-time payment or installments.

In addition, bonds are classified according to the method of payment: only interest, only par value, the sum of the two previous ones at maturity, reorganization, periodic fixed income plus principal at the end of the loan term. The coupon rate can be different (floating, uniformly increasing, minimal, mixed, unchanged). Paper can be convertible and vice versa, they also have a classification, depending on the security of the pledge.