A bond is a debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.
Corporate bonds are debt instruments because money is lent to a corporation. In taking money, the corporation issuing the bond promises interest (also called "coupon").
Corporate bonds, issued by a Corporation, are meant to raise the funds for the company’s expansion plans.
Types of Corporate Bonds
Based on Interest payment, corporate bonds can be classified:
2.Zero Coupon Bond
Based on Security
Based on Control (Ownership)
Based on Maturity
1.Fixed Maturity Bond
Based on Trading Location
Based on Performance in the Market
1.Blue Chip Bond
Based on Convertibility
Why Corporations issue Bonds?
The basic reasons are:
01. To raise capital for their business for investments
02. To Reduce the Cost of Capital
03. To Effect Tax Saving
04. Long-Term Financing
05. Avoid long-term financing from banks
06. Efficiency of management
07. Lower interest payments
08. No Dilution of Stockholder's Equity
09. Call options by the company
10. Convertibility options by the company