Bonds: Definition and Types

Bonds are issued to investors as financial contracts. In it, the company promises to pay principal and interest to each bondholder on a set date. Some types of bonds do not have to pay interest and only pay investors the principal amount.

Definition of Bonds

Bonds or bonds is one of the securities issued by a company or organization, usually within one year. The goal is to raise money so you can increase your capital by borrowing.

Types Bond

There are several types bonds which are generally offered by organizations or companies. Well, some kind bonds are as follows:

Zero Coupon Bonds & Coupon Bonds

Zero coupon bonds are bonds that pay no interest. As the name suggests, these bonds are debentures where the company pays no interest but is exchanged for a significant discount. At maturity, these bonds are profitable if fully redeemed.

Coupon bonds, on the other hand, are usually interest paid to bondholders or investors over an annual period of one year or more.

Companies that issue bonds of this type do not store bondholder data. The name of the owner of the letter is not recorded in any document. Therefore, each bondholder receives a coupon in the period between the issuance of the bond and maturity.

You need to know that there are bonds that were originally issued without interest. However, there are some whose interest is prematurely withdrawn by financial institutions. Therefore, this type can be converted into interest-free bonds.

Convertible and Callable Bonds

Convertible bonds are a type of bond that can provide investors with a fixed income. Payments are subject to interest and can be determined in advance, converted into ordinary shares or ordinary shares.

Conversion can be made during the term of the bond. As a general rule, conversion is at the discretion of the bondholder. The price of these convertible bonds depends on changes in share prices, interest rates and the creditworthiness of the bond issuer.

Then a call option bond on the other hand, is a type of bond that the issuer can buy or redeem before maturity. This type of bond provides an opportunity for companies to make early repayments.

Investors will benefit in the form of larger coupons and attractive interest rates.

Registered and Bearer Bonds

Registered bonds are types of bonds issued and registered on behalf of investors or owners. Therefore, issuers have data about bond owners, such as names, addresses, and various other information.

This allows the issuer to settle its obligations to the right party. This certificate can be signed manually by the owner or with computerized data.

Meanwhile, unregistered or bearer bonds bonds  is a bearer bond. It contains no owner data records. Whoever holds this bond is considered the owner.

This type of bond is very convenient for investors who wish to remain anonymous. However, the company does not guarantee if the bonds are damaged, lost or stolen.

Secured and Unsecured Bonds

Guaranteed bonds or secure bonds is a type of bond that is guaranteed by using certain assets such as buildings or land. This asset has a security loan function. If the issuer becomes insolvent at maturity, title to the assets passes to the creditor.

The assets used are also the issuer's income from bond-financed projects.

In contrast, an unsecured or unsecured bond is a type of unsecured corporate bond. Investors generally rely heavily on the company's credibility as a corporate bond issuer.

TErm and Serial Bonds

Term bonds are bonds with a specific maturity date. There is a nominal bond that must be paid to bondholders on that day. The term of the bond, in this case, is the period from the issuance of the bond to maturity.

Serial bonds or serial bonds are a type of recurring payment. This type of bond has multiple maturity splits. For the issuer, this bond will certainly be very profitable because the interest is lower so that the issuer can adjust the needs and pay obligations more lightly.

Junk Bonds

Junk or junk bonds bonds are bonds that have a higher risk of default than of successful payment. This type of bond actually has the same maturity date as other types of bonds. However, this garbage bond occurs because the issuing company usually has a low level of credibility.

So, in order to attract investors, junk bonds will usually offer very high interest coupons. Even though it is not profitable, the fact is that these bonds have their own devotees.

Thus a brief description of bonds or bonds. As such, they are usually securities issued within one year by a company or organization.

So, if you are interested in this investment, you should be able to read the company's financial statements properly, whether there is anything suspicious or not.