April 05, 2025
8 mins read
Getting more money is never simple, but every business needs it to stay open and develop. In the long run, companies can't handle the hefty interest rates that come with bank loans.
At that moment, bonds are helpful. The Straight Bond is one of the simplest kinds. Some people call it a "plain bond." It pays the investor interest on a regular basis and gives back the principal when it matures.
It's like giving a friend money. They promise to pay you back by a certain date and provide you interest in the interim. That's the major point of the Straight Bond. Meaning: it's basic, easy to grasp, and surprisingly popular with new investors.
That's just the start, though. Let's talk about how Straight Bonds function, what makes them different, and why you should think about them.
Businesses and governments always need to make money. Companies do this by selling bonds, which are like loans that consumers give them in exchange for interest.
The Straight Bond is the easier kind. They pay a set amount of interest every month, and when the loan is due, they pay back the principal, or face value. Both sides win: issuers pay less interest on loans, while investors like that they know what to expect.
Investors don't have to stay in for long. They can sell bonds before they mature, and they normally do this to make money by taking advantage of how the market is moving. But a lot of people choose to maintain them for a monthly income.
This is a simple explanation:
For five years, a corporation issues a Straight Bond with a face value of ₹1,000 and a coupon rate of 6% per year.
Buying at face value gives you ₹60 a year. That's ₹300 in interest over five years. You get your ₹1,000 back when the debt is paid off.
The company gets money and doesn't have to pay a lot of interest. Investors, on the other hand, make money continuously with no risk.
Both the people who issue and the people who buy Straight Bonds benefit. Investors can be guaranteed that they will get their money back, and issuers can borrow money rapidly.
There are a few simple reasons why straight bonds are good. Let's have a look at the essential ones:
These bonds promise a specified interest rate that was set when they were sold. You make payments on a regular basis until the debt is paid off. People who invest like them because they are dependable and easy to predict, especially when the markets are unstable.
There is a time when every Straight Bond will end. At this point, the issuer must return the investor's original amount, which makes them less risky than other investments.
The face value, or the amount that was first put in, is refunded when the investment matures. Straight bonds are a good choice for cautious investors who want both safety and earnings because they promise to keep your money safe.
Straight bonds may seem straightforward, but they have certain unique benefits:
Investors earn interest payments on a regular basis, which means they always have money flowing in. People who want their money to stay stable instead of growing quickly typically find that straight bonds are a great long-term investment.
Bonds that are easy to grasp are safer than stocks or bonds that are hard to understand. Fixed interest rates and payback terms protect against changes in the market, which makes them a safer choice for investors who are careful.
Investors don't have to worry about losing their principal amount because the issuer pays back the face value when the bond matures. Many people acquire Straight Bonds to protect their money.
When interest rates go down, straight bonds that are already on the market may become more appealing. New bonds pay less interest, which makes existing bonds look better. This gives investors a chance to sell them for more cash.
Let's not waste any time. Straight bonds are a bit of a risk. Like any other type of financial instrument, they have a lot of problems:
When interest rates go up, the market value of Straight Bonds that are already out there goes down. If you sell before maturity, you could lose money since investors are looking for other, higher-yielding choices.
These bonds don't change hands very often, especially those from smaller companies. Sometimes vendors have to take lower pricing because it can be hard to find a buyer.
It's not common for defaults to happen, but they can. Credit risk is a huge concern if the issuer is having trouble with money, such a failing company or even a government.
As inflation rises, straight bonds lose some of their sparkle. Your buying power goes diminish over time since payments with a fixed rate don't keep up with rising costs.
Additional Read: Different Types of Bonds
If you prefer Straight Bonds, here are some easy rules to follow:
Pay close attention to the payment schedule, the coupon rate, and the terms of repayment. These tell you how much money you can make and if the bond fits with your income goals.
There isn't always enough money available. You might have to sell your bonds for less money if you do so before they mature. So think about whether you can preserve them till they are ready to be used.
Wait till interest rates go down before you sell. When new difficulties come up, interest rates go down. This makes bonds more valuable, so you can sell them for a higher price.
Straight bonds might not be exciting, but sometimes "boring" is a good decision. They provide you peace of mind because you know you'll get your money back when the loan is due, and they pay you on time every time.
You can't just disregard threats like not having enough money or inflation. It's important to find a balance between these things.
You need a strong demat and trading account if you want to start investing. It's easier and less terrifying to deal with bonds if you choose a platform that you can trust and that knows a lot about the market.
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A straight bond is a type of debt instrument that is designed to offer a fixed interest rate, also known as the coupon rate, at regular intervals and a promise to return the principal amount on maturity. These types of bonds are issued to investors to raise capital without having to pay unreasonable interest rates that additional financial institutions usually take.
Remember that straight bonds differ from other types of bonds as these are known for simple and largely predictable features. While other bonds offer floating interest payment, embedded options like an option to convert into equity or puttable bonds etc straight bonds do not offer any of these features.
Investing in straight bonds comes with several benefits: generating a steady income stream, capital preservation, benefiting through interest rates and then also less prone to risks.
Before you decide to invest in straight bonds, you must be considerate about a few risks like the lack of liquidity that might limit your options to re-sell your street bonds before maturity, the risk associated with the credit amount when the bond issuer is facing a financial challenge or is a small or a low-rated corporation.
Additionally, remember that when the interest rate of these bonds rises, the value of the existing straight bond decreases, thus leaving you with no other option but to sell your bonds at a discounted price or wait for them to mature
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