Meaning of Bond


A bond, in the financial sense, consists of a debt security that can be issued by the State (national, provincial, municipal governments, etc.), private companies (industrial, commercial or services) or supranational institutions (development corporations, regional banks). These tools can have fixed or variable income and allow the issuer to obtain funds directly from the market.

In other words, it is a financial obligation that responds to a promise of payment that will be made in the future and for which a document is presented on paper where the amount, the amount of time available is recorded. the debtor to be able to repay the loan and in what form the repayment will be (terms, type of payment, etc.)

Typically, the bond is a bearer security that can be traded on a stock exchange. The bond, experts say, is a commitment made by the issuer to guarantee in this way the return of the original capital with the addition of the corresponding interests (which usually form what is known as a coupon). In the case of variable rate interest, the most frequent is that they are updated from some kind of index taken as a reference (as happens, for example, with the Euribor).

It is interesting to mention that there are various types of bonds, among which are convertible bonds (which can be exchanged for newly issued shares at a value already set in advance), exchangeable bonds (possible to be exchanged for existing shares), zero coupon bonds (they only pay interest when they are amortized), cash bonds (issued by companies and repayable at fixed maturity), perpetual debt bonds (they do not contemplate the return of principal, but rather propose the payment of interest in a indefinite) and junk bonds (they offer a high yield as they are considered high risk securities).

A voucher can also be a card, issued by a company or by the State, that can be exchanged for essential items or used as a discount on a purchase. For example: “The list price of the mattress was 200 pesos, but since I have a 10% discount voucher, I ended up paying 180 pesos.

Important aspects of the bond

There are many cases of people who, on the recommendation of their financial advisers, have invested their money buying bonds, why do they do so? Because it is believed to be the best way to preserve capital, a way to save without paying more than what is stipulated in the contract; This is because the bonds have a presumable flow of money and you can know the value that they will have until the end of the term. This type of investment is very common in people who want to save for the future of their children, to buy a house or even increase the value of their pensions.

When signing a Bond, however, it is advisable to carefully read the conditions that are inscribed in the document that identifies it. Among the things that need to be studied carefully are:

* Maturity: Indicates the date on which the debt must be settled, generally it responds to a range that can go from one to thirty years, but it always depends on the type of bond in question;

* The contract: As there is an indeterminate amount of various bonds, there are also contracts; They specify the obligation of each party and the payment conditions, among other important details of the transaction;

* Interest: They can be fixed or variable and based on this also depends on the period of time available to pay them;

* The rates tax: Depending on the type of bond these fees may vary; in some cases the interest is tax-free and in others it is not.

According to the objectives that are had when assuming this debt, one or the other will be more convenient and it is highly recommended to have an investment specialist to whom to turn in case of doubts, who can advise us correctly about the steps to follow.