INFLATION INDEXED BOND AND ZERO COUPON BOND
Meaning: Bonds are a debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. Bonds are issued by companies, municipalities, states and sovereign governments to finance projects and operations. Owners of bonds are debtholder or creditor of the company. Bonds are units of corporate debt issue by companies and securitized as tradeable assets. Bonds prices are inversely correlated with interest rates. when rates go up, bond prices fall and vice-versa. Bonds have maturity dates at which point the principal amount must be paid back in full or risk default. there are more than 12 types of bonds are traded but i will explain two types which are mentioned below. INFLATION INDEXED BOND AND ZERO COUPON BOND: INFLATION INDEXED BOND: Inflation indexed bonds are bonds where the principal or interest is indexed to inflation and retail price index. They are thus, designed to cut out the inflation risk of an investment and inflati