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Bonds are financial products that fall under the debt asset category and are issued by public or private institutions to generate money from the general public. Governments and commercial groups generate money to guarantee they have enough cash to carry out a variety of tasks.
In the stock market, there are different types of bonds which have their own functions. Some of the bonds are as follows:
Zero Coupon Bonds
Zero-coupon bonds are sold at a discount and redeemed for their full face value rather than paying interest.
Sovereign Gold Bonds
As a replacement for real gold, sovereign gold bonds are issued in multiples of grams.
Municipal Bonds
The Municipal Corp. offers bonds to finance public projects including schools, hospitals, parks, roads, and bridges.
Convertible Bonds
Bonds known as convertible bonds are those that may be converted into a set number of shares of common stock or equity.
Bonds Linked to Inflation
Bonds with inflation-linked principle values (ILBs) reduce the risk of inflation by varying the principal value with inflation.
Governments and corporate organisations can generate money through the disinvestment of public issues like initial public offerings (IPOs), but these avenues cannot guarantee a constant flow of resources. As a result, both public and private organisations issue bonds to make sure they raise enough money.
Similar to other debt products, bonds function by requiring periodical interest payments from the issuer to the holder and repayment of the principal at maturity. When the investment in bonds is complete, the issuer pays interest to the bondholders in accordance with the coupon outlined at the time of the bond issuance.
Investors have two options when bonds are created. Investing in bonds either retain return until maturity with its interest payments, or you can sell them to other investors to benefit from the spread between the current bond price and the face value. When interest is due, the issuer must pay the new buyer of the bonds if the bonds are sold to a new buyer.
