Bonds

Types of Bonds

This section will focus on the various types of bonds that a company might issue.

Bonds can be classified in the following categories:

  1. Fixed rate: Fixed rate is an interest rate that remains fixed either for the entire term of the bond or part of the term. This category includes bonds with fixed coupons.
  2. Floating rate: Floating rate is an interest rate that is allowed to rise up and down in sync with the market or together with an index. Also regarded as variable interest rate.

In the financial market of Pakistan, bonds are either issued by the Government or Corporate entities.

Government Bonds

Government bond is a debt security loaned by a government to assist government spending, most often issued in the country’s local interest.

The various types of Government bonds issued by the Govt. of Pakistan are as follows:

  • Pakistan Investment Bonds
  • US Special Dollar Bonds
  • Wapda Bonds
  • National Saving Bonds
  • and Sukuk

Corporate Bonds

Corporate Bond is a debt security which is issued by company and sold to investors to meet its financial requirements. In Pakistan this is commonly known as Term Finance Certificate (TFC). Corporate Bonds are normally issued for a specified time period with an assurance to return the principal amount of the bond money including interest to the bondholder.

When someone buys a bond, he/she is lending money to the company that issued it. The company ensures to return the money, on a specified maturity date. Till that time, it also pays a stated rate of return, which usually occurs semiannually. The interest payments collected from corporate bonds are taxable. Unlike shares, bonds do not provide an ownership interest in the issuing company.