Monday, December 18

Bonds

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Bonds can be classified into following categories:

Secured versus unsecured bonds: Unsecured bonds have no charge on any specific assets of the company while secured bonds carry a fixed or floating charge on the assets of the company.

Senior versus Subordinate bonds: The senior bondholders have to be paid before the subordinate bondholders. This means that if the assets of the company are insufficient to pay all the debts, the senior bondholders would get whatever amount can be realized and then the subordinate bondholders will be paid from the available balance.

Registered and unregistered bonds: On the basis of transferability, debentures can be classified as registered and unregistered debentures. Unregistered debentures are freely negotiable and can be transferred by a simple endorsement. On the other hand, registered  debentures can be transferred only by executing a transfer deed and filing a copy of it with the company.

Convertible and non-convertible bonds: Convertible bonds are the ones which can be converted into equity shares at the option of the bondholders. They have a convertible feature attached and can be either fully convertible or partly convertible.

Treasury bonds: Bonds issued by the government are termed as treasury bonds. Dated securities are bond issued by government for longer periods.

Corporate Bonds:These bonds are issued by the corporates for borrowing purposes. These bonds are traded in the secondary market and the price of the bonds depends on the market interest rates ruling at the time of trading.

Preferred stock or preference share: Though in the stricter sense it is to be treated as equity, it is often included under fixed income securities as the dividend income is fixed for preference shares.

Indexed Bonds: In indexed bonds, the principal and coupon payments are linked to the market index like inflation and price index. They are safer than conventional bonds.

Junk Bonds: Junk bonds are high yield bonds issued by companies and are considered highly speculative because of high risk of default.

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