debt investments

The investment towards the debentures and bonds are known as debt investments. Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender.


Each debt instrument has three features: Maturity, coupon and principal.

· Maturity: Maturity of a bond refers to the date, on which the bond matures, which is the date on which the borrower has agreed to repay the principal. Term-to-Maturity refers to the number of years remaining for the bond to mature. The Term-to-Maturity changes every day, from date of issue of the bond until its maturity. The term to maturity of a bond can be calculated on any date, as the distance between such a date and the date of maturity. It is also called the term or the tenure of the bond.

· Coupon: Coupon refers to the periodic interest payments that are made by the borrower (who is also the issuer of the Debt Instrument) to the lender (the subscriber of the Debt Instrument). Coupon rate is the rate at which interest is paid, and is usually represented as a percentage of the par value of a bond.

· Principal: Principal is the amount that has been borrowed, and is also called the par value or face value of the bond. The coupon is the product of the principal and the coupon rate.