Question

Answer in brief.

State the features of Bonds.

Answer 1

Meaning:
A bond is a debt security. It is a loan. A bond is a formal contract to repay the borrowed money with interest. It is an interest bearing certificate issued by the government, semi-government, or business firms to raise capital. The person holding such an instrument is known as a bondholder. He becomes the creditor of the company.

Definition:
According to Webster Dictionary,
"A bond is an interest bearing certificate issued by the government or business firms, promising to pay the holder a specific sum at a specified date".

Features of Bonds are as follows:

(a) Nature of finances: A bond is a debt or loan finance. It represents long term finance of the company.
Generally, the bonds are issued for a long period. For instance, 5 years, 10 years, and so on.

(b) Status of investor: The bond holders are the creditors of the company. Being creditors and non-owners, they do not enjoy any voting rights.
They are not entitled to participate in general meetings and in the management of the company.

(c) Return on bonds:
Bonds are issued bearing a fixed rate of interest. So, the bondholders get a fixed rate of interest.
It is payable at regular intervals, but it may be paid on maturity also.

(d) Repayment: Bonds have a specific maturity date because a bond is a formal contract to pay the borrowed money. Thus, the repayment of the principal amount is due on the maturity date.