Bond

A bond is a negotiable debt investment instrument issued by companies or government agencies to raise capital. It provides a fixed income to investors over a defined period. When an investor purchases a bond, they lend money to the issuer, who in return agrees to repay the principal amount (bond value) at a specified maturity date, along with periodic interest payments, typically made every six months (semi-annually).

Bonds are commonly used by corporations, municipalities, and foreign governments to finance infrastructure projects, business expansion, or other activities. They offer investors a relatively stable and predictable return compared to stocks, making them a preferred choice for those seeking lower-risk investments.

Types of Bonds

Bonds can be classified based on their interest structure and issuer.

1. Fixed Rate Bonds

These bonds have a constant interest rate throughout their term or for a specific period. Investors receive fixed coupon payments at regular intervals, making them a predictable and stable investment option.

2. Floating Rate Bonds

These bonds have an interest rate that fluctuates based on market conditions or an underlying financial index. They are also called variable interest rate bonds and help investors benefit from rising interest rates.

Bonds in Pakistan

In Pakistan, bonds are primarily issued by either the Government or Corporate Entities.

Government Bonds

Government bonds are debt securities issued by the state to finance government expenditures. They are considered low-risk investments as they are backed by the government.

Types of Government Bonds in Pakistan

1. Pakistan Investment Bonds (PIBs) – Long-term bonds issued by the government with fixed or floating interest rates, typically ranging from 3 to 20 years.
2. US Special Dollar Bonds – Foreign currency-denominated bonds issued for overseas investors or institutions.
3. WAPDA Bonds – Issued by the Water and Power Development Authority (WAPDA) to fund energy and infrastructure projects.
4. National Saving Bonds – Offered under the National Savings Schemes, aimed at individual investors seeking secure returns.
5. Sukuk Bonds – Islamic bonds compliant with Shariah law, structured around asset-backed financing rather than interest-based returns.

Corporate Bonds

Corporate bonds are debt instruments issued by private or public companies to raise funds for business expansion, project financing, or operational needs. In Pakistan, they are commonly known as Term Finance Certificates (TFCs).

Features of Corporate Bonds

• Fixed Maturity – Issued for a set period, after which the principal amount is repaid.
• Periodic Interest Payments – Investors receive regular interest payments, usually semi-annually.
• Taxable Returns – Interest income from corporate bonds is subject to taxation.
• No Ownership Rights – Unlike stocks, bondholders do not get ownership in the company but are prioritized over shareholders in case of liquidation.

Corporate bonds offer higher returns than government bonds but come with slightly higher risk, depending on the financial stability of the issuing company.