What are the basic words used in bonds?

Here are a few of the commonly used words related to bonds:

 • Bonds:  Bonds are essentially loans an investor give to companies or governments, and in return, they pay you interest over a specified period.

 • NBFC : An NBFC (Non-Banking Financial Company) is a financial institution that offers services like loans and investments but doesn’t hold a full banking license like traditional banks.

 • Face Value: This is the amount that an investor will receive from the issuer (NBFC) when the bond matures. It represents the loan amount provided by the investor to the issuer and also indicates the remaining principal amount, in per-unit terms, that is yet to be repaid.

 • Accrued interest: It refers to the interest that has accumulated on a bond between the last interest payment date and the current date. It is payable to the seller of the bond for the period in which the bond had been held by them.

 • Discount: If a bond is purchased at a price lower than its face value, it is said to be bought at a discount.

 • Premium: If a bond is bought for a price higher than its face value, it is considered to be bought at a premium.

 • Clean price: The sum of the bond’s Outstanding Principal and the Premium or Discount value. The XIRR (annual return) you earn is calculated based on the Clean Price, ensuring that any premium or discount is already factored in. This means you’ll still earn the returns shown on the bond page.

 • Dirty price: The sum of the Clean Price and Accrued Interest. This reflects the total amount you would pay for the bond, including any accrued interest since the last payment.

 • Acquisition Cost: The sum of Accrued Interest and Premium, or Accrued Interest minus any Discount. This represents the total amount paid above the face value of the bond. The acquisition cost can also be claimed as an expense during tax filing, making it relevant for tax considerations.