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Bonds refer to high-security debt instruments that enable an entity to raise funds and fulfil capital requirements. It is a category of debt that borrowers avail from individual investors for a specified tenure.
Organisations, including companies, governments, municipalities and other entities, issue bonds for investors in primary markets. The corpus thus collected is used to fund business operations and infrastructural development by companies and governments alike.
Investors purchase bonds at face value or principal, which is returned at the end of a fixed tenure. Issuers extend a percentage of the principal amount as periodical interest at fixed or adjustable rates.
Individual investors acquiring bonds have legal and financial claims to an organisation’s debt fund. Borrowers are therefore liable to pay the entire face value of bonds to these individuals after the term expires. As a result, bondholders receive debt recovery payments before stakeholders in case a company faces bankruptcy.