Different Types of Bond and Here’s What They Mean

Bond is one of the types of instruments which is used to borrow money. It gives an assurance to the investor regarding his funds. Bonds are issued by many government organizations, corporations and private entities. Different types of bonds are issued by organizations generally for a longer period, say of more than one year to raise money by borrowing. In simpler words, a bond is generally a form of debt which the investors pay to those who require the sum for a defined time frame. The same generally have a fixed maturity date that is the final date for the payment of any financial product when the principal along with the interest needs to be paid to the investor by the issuer. All bonds are usually expected to pay the amount that they are required to by or after the maturity date. 

Bonds are commonly referred to as fixed income securities and are one of three asset classes individual investors are usually familiar with, along with stocks. It is not necessary for a bond holder to hold their all the way through its maturity date. It is also common for bonds to be repurchased by the borrower if interest rates decline, which is a smart and beneficial decision, or if the borrower’s credit has improved, and it can reissue new bonds at a lower cost. Different types of bonds also have numerous key characteristics, incorporating factors such as face value, coupon rate, coupon date, issue price and as earlier discussed, maturity date.

While many in the entrepreneur world are well aware of bonds, a large population has not yet acknowledged the existence of different types of bonds. We shall now look over various types of bonds. Bonds can largely be classified into four sorts. 

• Corporate Bonds

Corporate bonds are those bonds issued by companies for raising funds. Different corporations issue bonds to meet their needs like growth, expansion or investment. In comparison to bank loans, bonds are cheaper to brands than loans. That is why more corporations are likely to issue bonds to raise capital or meet investment requirements.  

• Municipal Bonds

Municipal bonds are government issued bonds, issued by states and municipalities. An asset of issuing such bonds is that some municipal bonds offer tax-free coupon income for investors which is extensively advantageous.

• Government Bonds

As the name suggests, the bonds issued by the government on larger levels are merely the government bonds. 

• Agency Bonds

Those bonds issued by government affiliated organizations such as Fannie Mae or Freddie Mac are coined as agency bonds. Bonds can also be further subdivided into units, namely: fixed rate bonds, floating rate bonds, zero interest bonds, inflation linked bonds, perpetual bonds, subordinate bonds, bearer bonds and war bonds amongst few others.

Overall, one can conclude by saying that types of bonds are an interesting study and such investments are risky yet a beneficial field in the corporate realm and the entrepreneurship world. Each type of bond has its own assets and liabilities and is suitable for different types of requirements. The types of bonds can be well elaborated and can be well learned for attaining the utmost benefits as investors as well as issuers.

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