NISM Series XV : Research Analyst Certification Exam Notes
Page 29 Of 62
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Convertible Bond or debenture is generally issued as a debt instrument with the option to investors to convert the amount invested into equity of the issuer company later. This security has features of both debt and equity. The issuer specifies the details of the conversion at the time of making the issue itself.
Amortization Bonds - Bonds usually pay interest during the tenor and the principal is repaid as a bullet payment upon maturity. However, there is a type of bond, known as 'Amortization Bond', in which each payment carries interest and some portion of the principal as well.
Callable Bonds allow the issuer to redeem the bonds prior to their original maturity date. In other words, bonds which have embedded call option in them are known as Callable Bonds. This feature poses a risk for investors but is beneficial for the issuers.
Puttable Bonds - A Puttable bond gives the investor the right to seek redemption from the issuer before the original maturity date. These bonds have embedded Put options in them. In this case, the risk is on the issuer, as the investor can, at any point of time give the bond back to the issuer and ask for his principal, earlier than maturity. This would mean cash flow problems for the issuer.
Payment in Kind (PIK) Bonds - These are bonds in which the coupon is not paid in cash but by way of more bonds. Companies which have cash flow problems issue such kind of securities and hence by nature these instruments are risky
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