DIFFERENT TYPES OF BONDS PERPETUAL BONDS:- These types of b | UPSC Notes EPFO Labour Law

DIFFERENT TYPES OF BONDS

PERPETUAL BONDS:- These types of bonds pay a coupon rate on the face value till the life of the company. Though Perpetuity means forever, bonds with maturity above 100 years are also considered to be perpetual bonds.

CONVERTIBLE BONDS:- Convertible bonds are a special variety of bonds which have an inbuilt feature of being converted to equity shares at a specified time at a pre-set conversion price.

FOREIGN CURRENCY CONVERTIBLE BONDS:- Foreign currency convertible bond is a special type of bond issued in the currency other than the home currency. In other words, companies issue foreign currency convertible bonds to raise money in foreign currency.

EXCHANGEABLE BONDS:- These bonds are similar to the convertible bonds but differ in one aspect that they can be exchanged for equity shares but not of the issuer. These can be exchanged for equity shares of another company which the issuer may have stakeholding.

CALLABLE BONDS:- Bonds that are issued with a specific feature where the issuer has the right to call back the bonds at a pre-agreed price and a pre-fixed date are called as callable bonds. Since these bonds allow a benefit to the issuer to repay off the liability before maturity, these bonds usually offer a coupon rate higher than a normal straight coupon-bearing bond.

PUTTABLE BONDS:- Bonds that are issued with a specific feature where the bondholder has the right to return back the bonds at a pre-fixed date before maturity are called as puttable bonds. Since these bonds allow a benefit to the bondholders to ask for the principal repayment before maturity, these bonds usually offer a coupon rate lower than a normal straight coupon-bearing bond.

TREASURY STRIPS:- In the US, Government dealer firms usually break down a coupon-bearing bond into a series of zero coupon bonds by considering each cash flow as a separate bond. For example, a 5-year semiannual coupon-bearing bond can be split into 10 zero coupon bonds with coupon amount as face value and 1 zero coupon bond with principal amount as the face value. The bond stripping usually is done to increase liquidity and facilitate easy tradability.

YANKEE BONDS:- A dollar-denominated bond issued in the US by an issuer who is outside the US is called as Yankee bond.

SAMURAI BONDS:- A yen-denominated bond issued in Japan by an issuer who is outside Japan is called as Samurai bond.

Shogun Bonds: A non-Yen denominated bond issued in Japan by an issuer who is outside Japan is called as Shogun bond.