A callable bond also called a redeemable bond, can be called by the issuer before the maturity date. Most bonds issued are callable bonds by default. However, callable bonds come with an embedded call feature that investors are aware of. Bond issuers issue callable bonds in a high-interest rate market and expect to lower interest […]
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STRIPS comes from the acronym of “Separate Trading of Registered Interest and Principal Securities”. Treasury notes and bonds can be stripped to repackage their interest and principal payments. Usually, a zero-coupon bond issued by the US treasury is termed as a STRIPS instrument. Institutional investors like pensions funds, banks, and corporations invest in US Treasuries
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Perpetual bonds are bonds that are issued with no maturity date. These bonds are also called “Perps” or “consol,”. As the name suggests, these bonds can work for perpetuity. Investors would receive coupon payments as long as they hold the investment in these bonds. These bonds present a fraction of the total bond market today.
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An exchangeable debt or bond can be converted into equity of a company other than the issuer of the debt. The investors keep the option of converting the bond into equity but not the legal obligation. An exchangeable bond offers embedded diversification of risk for the investors. At the same time, investors face a higher
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Bonds are typically fixed-income instruments. Step-up bonds are a special type of bond that comes with rising interest rates. These bonds offer a low-interest rate initially and then an increased interest rate after a specific period. It can come with a single interest rate rise or multiple interest rate increases. The interest rates can also
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Plain vanilla is a term in finance used for securities without special features. The Plain vanilla concept may apply to Options, Futures, Swaps, and Bonds. It depicts the simplest of the forms for financial instruments and securities. It means there are no special features attached to a financial instrument such as a Call or Put
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Deferred coupon bonds do not offer periodic interest payments. These bonds offer a deferred and accrued interest payment after a certain date, often at maturity. The interest payments can be deferred until maturity or a certain period. Deferred coupon bonds are a good investment tool for investors looking for capital gains. However, it does not
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Stock Warrants are derivatives like Options that give a right but not an obligation to the holder to purchase stocks at a specific date with a set price. The investor in these derivatives can exercise the right to fully subscribe to the shares or let them lapse. Warrants are different from Options in a few
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A Banker’s Acceptance (BA) is a type of financial instrument that promises a future payment at a certain date from the bank. It is also known as a bill of exchange. A banker’s acceptance is used as a payment instrument in international trade. It comes with additional features of being marketable security. Hence, it can
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Index Funds comprise securities that follow an index or benchmark. These can be Mutual Funds or Exchange-Traded Funds (ETFs). These funds are passively managed funds and try to copy the securities that are included in the index. Investing in these funds can bring several benefits to investors. It can offer low-cost investment with low-risk options.
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