What is Bond ?
Bonds : A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.
Principal and Interest are repayable on a specified date. However, some bonds do not pay interest at all and these are called Deep Discount Bonds.
Through Bonds, the buyer does not gain any kind of ownership rights, unlike equity shares.
Issue of Bonds under Open & Close Ended Schemes –
Close Ended Schemes:
Once the funds have been raised, after the date of closure of the issue, no additional bonds can be issued.
The redemption/repayment of the bond will be only at maturity, unless there is a call option clause or put option clause in the issue/trust deed of bonds.
Open Ended Schemes:
Once the funds have been raised, the issue does not close and additional funds can be raised under the same scheme, i.e. at the same rate of interest, against same security, but for remaining maturity.
However, the issue of additional funds under the same scheme is subject to restrictions imposed in the offer document & trust deed which usually relates to safeguarding the interest of the bondholders.
These conditions usually provide that the amount of security should usually not fall below a certain level and the long-term solvency of the issuer should not be adverse.
The bonds under the open-ended scheme may also be refunded before maturity. However, this can be done only if the restrictions regarding lock-in period and redemption at a premium “as earlier decided” are fulfilled.
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