What are Corporate Bonds

A corporate bond is a type of debt security that a company issues and sells to its investors. The company obtains the capital it requires by issuing bonds. In exchange, the investor receives a predetermined number of fixed or variable interest payments. The payments stop when the bond “reaches maturity,” and the original investment of the bond is returned later.

KEY TAKEAWAYS

• A corporate bond is debt issued by a company in order for it to raise capital.
• An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, however these bonds may also actively trade on the secondary market.
• The highest quality (and safest, lower yielding) bonds are commonly referred to as "Triple-A" bonds, while the least creditworthy are termed "junk".

What are Government Bonds

A government bond is a bond that the government issues to raise funds in the domestic market. The Reserve Bank of India (RBI) supervises government bonds, which are mostly issued by the central government. The RBI issues bonds on behalf of the government and auctions them to investors. The government issues bonds to raise funds for projects related to public welfare and infrastructure development. Investors who purchase bonds would receive a regular and fixed interest rate from the government. On the maturity date, the investors will be paid the principal value of the bonds.

KEY TAKEAWAYS

• A government bond represents debt that is issued by a government and sold to investors to support government spending.
• Some government bonds may pay periodic interest payments. Other government bonds do not pay coupons and are sold at a discount instead.
• Government bonds are considered low-risk investments since the government backs them.
• The various types of bonds that are offered by the U.S. Treasury are considered to be among the safest in the world.
• Because of their relatively low risk, government bonds typically pay low interest rates.