Bond Glossary
Essential bond terminology explained in simple language
Accrued InterestTrading
Interest that has accumulated on a bond since the last coupon payment. When you buy a bond between coupon dates, you pay the seller the accrued interest.
BondBasics
A debt instrument where an investor loans money to an entity (corporate or government) that borrows the funds for a defined period at a fixed or variable interest rate.
Call OptionFeatures
A feature that allows the issuer to redeem the bond before its maturity date, typically at a premium to face value.
CouponBasics
The annual interest rate paid on a bond, expressed as a percentage of the face value. A bond with Rs. 1,000 face value and 8% coupon pays Rs. 80 per year.
Credit RatingRisk
An assessment of the creditworthiness of a bond issuer. Ratings range from AAA (highest) to D (default). Higher ratings indicate lower default risk.
CRISILRating Agency
Credit Rating Information Services of India Limited. One of India's leading credit rating agencies that rates bonds and other debt instruments.
Current YieldYield
The annual coupon payment divided by the current market price of the bond. Different from YTM as it doesn't account for capital gains or losses.
DebentureTypes
A type of debt instrument not secured by physical assets or collateral. In India, the term is often used interchangeably with bonds.
DefaultRisk
When a bond issuer fails to make scheduled interest or principal payments. This can result in significant or total loss for bondholders.
Demat AccountTrading
A dematerialized account that holds securities in electronic form. Required for investing in bonds in India.
DurationRisk
A measure of a bond's sensitivity to interest rate changes. Higher duration means greater price volatility when rates change.
Face ValueBasics
The nominal value of a bond, typically Rs. 1,000 in India. This is the amount paid back to the bondholder at maturity.
Fixed Rate BondTypes
A bond that pays a constant coupon rate throughout its life. The interest payments remain the same regardless of market conditions.
Floating Rate BondTypes
A bond where the coupon rate is reset periodically based on a benchmark rate (like repo rate or T-bill rate) plus a spread.
G-SecTypes
Government Security. Bonds issued by the central government of India. Considered risk-free as they're backed by sovereign guarantee.
ICRARating Agency
Investment Information and Credit Rating Agency. A major Indian credit rating agency that rates debt instruments.
Interest Rate RiskRisk
The risk that bond prices will fall when interest rates rise. Longer-maturity bonds have higher interest rate risk.
ISINBasics
International Securities Identification Number. A 12-character alphanumeric code that uniquely identifies a specific security like a bond.
IssuerBasics
The entity that borrows money by issuing bonds. Can be a corporation, government, or government agency.
Junk BondTypes
A bond rated below BBB (or Baa). These bonds carry higher risk of default but typically offer higher yields to compensate.
LiquidityTrading
How easily a bond can be bought or sold in the market without significantly affecting its price. Government bonds are typically more liquid than corporate bonds.
Maturity DateBasics
The date on which the bond's principal (face value) is repaid to the bondholder and the bond ceases to exist.
NCDTypes
Non-Convertible Debenture. A debt instrument that cannot be converted into equity shares. Most corporate bonds in India are NCDs.
Par ValueBasics
Another term for face value. A bond trading at par is priced at its face value (Rs. 1,000).
PremiumTrading
When a bond trades above its face value. This typically happens when the bond's coupon rate is higher than current market rates.
PrincipalBasics
The original amount invested in a bond, which is returned to the investor at maturity.
Put OptionFeatures
A feature that allows the bondholder to sell the bond back to the issuer before maturity at a predetermined price.
Rating AgencyRating Agency
An organization that assesses the creditworthiness of debt issuers. Major Indian agencies include CRISIL, ICRA, CARE, and India Ratings.
RedemptionTrading
The repayment of a bond's face value to investors at maturity or when the bond is called.
Secured BondTypes
A bond backed by specific assets of the issuer as collateral. In case of default, bondholders have claim to these assets.
Senior BondTypes
A bond that has priority over other debt in case of issuer bankruptcy. Senior bondholders are paid before subordinate bondholders.
SpreadYield
The difference in yield between two bonds, often comparing a corporate bond's yield to a government bond of similar maturity.
Subordinate BondTypes
A bond that ranks below senior bonds in priority for repayment in case of default. Higher risk, typically higher yield.
TDSTax
Tax Deducted at Source. For bonds, 10% TDS is deducted if annual interest exceeds Rs. 5,000 from a single issuer.
TenureBasics
The total length of time from a bond's issue date to its maturity date.
Unsecured BondTypes
A bond not backed by any specific collateral. Repayment depends entirely on the issuer's creditworthiness.
YieldYield
The return earned on a bond investment. Can refer to current yield, yield to maturity, or yield to call.
YTCYield
Yield to Call. The return if a callable bond is held until its call date rather than maturity.
YTMYield
Yield to Maturity. The total return anticipated if a bond is held until it matures, accounting for coupon payments and any capital gain or loss.
Zero Coupon BondTypes
A bond that pays no periodic interest. Instead, it's issued at a discount and redeemed at face value, with the difference being the investor's return.