How difficult it is for you to select a colour that is most suited for the situation in question? Favorite color may be readily chosen but not the suitable one, when you can have any combination of primary and secondary colors. The same kind of chaos may be awaiting you when you proceed with your investment plans with bonds. Bonds are so diverse that listing them and selecting them from the list is not an easy man’s task. The below goes the list of some of the most used bonds in the financial market.
On the basis of the issuing authority:
Government bonds: The safest bonds, with the lowest interest rates, these bonds are also called as Treasury bonds and are attached with a sense of security and low risk as with other government schemes. Some variations are War bonds, Climate bonds etc.
Municipal bonds: Bonds issued by local or regional governing bodies such as states, municipalities, councils etc.
Lottery bonds: Bonds issued by states in Europe and characterized by random redemption of the bonds.
Based on the coupon nature:
Fixed rate bonds: The rate of interest remains fixed throughout the lifetime of the coupon except for stepped-coupon bonds that have gradient increases.
Floating rate bonds: The coupon varies on the basis of a reference interest rate, periodically after a definite duration.
Zero-coupon bonds: Regular interests are not paid in these bonds and the holder receives the complete principal amount when the bond is redeemed.
Based on the exchange option:
Convertible bonds: Having a combination of features of equity and debt securities, the holder can exchange convertible bonds to the shares of the issuer in the common stock.
Exchangeable bonds: These bonds can also be exchange with the shares of any corporate and not that of the issuer. This exchange can done either by mutual communication or through platforms like Qprofit System.
On the basis of security:
Asset-backed securities: The money associated with these bonds are supported by the cash flows from assets like mortgages, collateral securities etc.
Covered bonds: The bonds which are secured by the assets and income from public sector and mortgages and are duly credited in the balance sheet of the borrower.
Based on yield:
High-yield bonds: These bonds yield higher, but are riskier and com below the investment grade in the credit ratings of agencies.
Inflation-indexed bonds: The returns on the principal amount of the bond and the accrued interest change according to the inflation. The principal amount obtained at maturity increases with inflation.
On the basis of the documentation of ownership:
Bearer bond: The holder of the bond is not documented in the official certificate and the person presenting the certificate is entitled to receive the redemption amount.
Registered bond: All the transfers in ownership and holding are documented in the certificate by the borrower or a representative.