Bond Words, Explained Simply

A bond is a loan you give to a company or the government, on fixed terms. They pay you interest along the way, and return the original amount on an agreed date.

Face value is the original amount printed on the bond. It is what comes back to you on the maturity date, and it is the figure the coupon is calculated on.

The coupon is the yearly interest a bond pays you. It is shown as a percentage of the face value. Example: a ₹1,000 bond with an 8% coupon pays you ₹80 every year. This works much like the interest a bank fixed deposit pays you each year.

The maturity date is the day a bond ends. On this day, you get back the bond's face value. Example: a bond bought in 2026 may mature in 2031. In 2031, you receive your original ₹1,000 back, along with the last interest payment.

YTM is your real yearly earning if you hold the bond until it matures. It includes the yearly interest you receive, plus any difference between what you paid and what you get back at the end. Example: A bond has a face value of ₹1,000 and pays an 8% coupon, or ₹80 a year. You buy it for ₹950, not ₹1,000. Each year you still get ₹80. At maturity, you also gain ₹50 extra. Because of this extra gain, your real yearly earning, the YTM, works out a little higher than 8%.

A credit rating is like a safety score for a bond. Independent rating companies study the borrower and judge how likely they are to repay on time. A rating like AAA or AA suggests the borrower is considered highly reliable. A rating like BBB or lower suggests a higher chance of delay or non-payment.

A government bond, also called a G-Sec (Government Security), means you are lending to the Government of India. A corporate bond means you are lending to a company. Government of India securities carry very low, negligible credit risk. Corporate bonds carry the credit risk of that specific company, reflected in its credit rating.

A secured bond is backed by some property or asset of the borrower; if the borrower cannot pay, that asset can be sold to repay bond holders, much like a home loan. An unsecured bond rests only on the borrower's promise, similar to lending cash to a friend on trust.

Paying more than face value means you bought it "at a premium." Paying less means you bought it "at a discount." Example: a ₹1,000 face value bond bought for ₹1,050 is at a premium; bought for ₹950 is at a discount.

Interest that has built up since the last payment date, but is not yet paid out. Example: a bond pays ₹80 interest every year. If six months have passed since the last payment, about ₹40 has accrued. A buyer usually pays this accrued amount to the seller, along with the bond's price.

How easily you can sell a bond before maturity and get your money back quickly. It is a bit like selling gold jewellery quickly at a local shop, versus selling a rare old coin, which can take longer to find the right buyer.

How sensitive a bond's price is to interest rate changes. The longer a bond's duration, the more its price can move up or down when interest rates change. Picture a see-saw: a bond with longer duration sits further from the centre, so it moves more, even with a small push.

The Reserve Bank of India's own free portal, where an individual can buy government securities directly. There is no broker or platform in between, and no commission to anyone.

The ten-character tax ID issued by the Income Tax Department. Every investment account in India is linked to it.

The twelve-digit identity number issued by UIDAI. The mobile number linked to it is what lets you verify yourself quickly while opening an account online.

The one-time identity check every regulated financial platform must complete before you can invest. Usually a short online step using your PAN, Aadhaar and a photo or video.

The account you receive on RBI Retail Direct, held in your own name. Government securities you buy through the portal are held in it.

Very short-term borrowings of the Government of India, maturing in 91, 182 or 364 days. They pay no yearly coupon; you buy below face value and receive the full face value at maturity.

Government of India bonds with a fixed maturity date years into the future, paying interest at regular intervals until that date.

Bonds issued by state governments to fund their own spending. Generally considered fairly safe, though not quite the same as central government borrowing.

Bonds issued by a company. NCD stands for Non-Convertible Debenture, meaning it stays a loan and never converts into shares of that company.

Bonds issued by government-owned companies, such as large power or finance PSUs. Usually seen as safer than an ordinary company, but not identical to a government bond.

Government bonds whose value is linked to the price of gold, so you track gold without storing any. Availability of new issues changes over time.

The Securities and Exchange Board of India, the regulator for securities markets. It licenses and supervises bond platforms, brokers and exchanges.

A company registered with SEBI to sell listed bonds online to ordinary investors. Its registration number should be visible on its own website.

An electronic locker that holds your bonds and shares in digital form, much like a bank account holds your money.

The issuer's official document describing the bond: who is borrowing, the exact terms, the risks, and what the money will be used for. It is the bond's own fine print.