Bond investment has been popular among investors to be one of the safest investments. It provides stability for your investment portfolio. With the bond investment, you can get a steady stream of income when your other asset, like stock, perform badly.
If you are interested to invest in a bond, then understanding the basic terms of bond investment for every bond investor is essential.
The Five Key Features in Bond Investment
Whenever an individual bond issued, it has five features. They are issue date, issue size, maturity date, maturity value, and coupon. Here is the detail explanation of those features.
Issue Size
The bond offering issue size is the number of issued bonds multiply by the face value. For instance, if an institution issues two million bonds with a $100 face price, then the bond issue size is $200 million.
In other words, the issue size shows the needs of borrowing from the entity that issues the bonds and the market demand for the bond at an acceptable yield for the issuers.
Issue Date
The issue date is the date when a bond is issued and began to accrue interest.
Maturity Date
The maturity date is the date when the investors can get his or her principal repaid. Investors also can buy or sell the bonds before their maturity date.
Maturity Value
The amount of money paid by the issuers to the holder at the maturity date. Sometimes, many investors also refer to it as ‘face value’ or ‘par value’.
People trade bonds on the open market starting from the issuance date up to the maturity date. Thus, the market value of the bond can be different from the maturity value.
However, if there is no default, then investors can get the maturity value at the maturity date. The amount of money received by the investors remains the same, even if the market value of that particular bonds fluctuates during the course of its life.
Coupon
Coupon rate means the periodic interest payment made by the issuers during the life period of the bond. The term ’coupon’ originally comes from the old days when people hold physical bond certificates.
Also read: Use Investment Grade Bonds to Avoid Credit Losses
