India recently issued its first additional Tier I (AT-1) perpetual bonds, following rule changes aimed at making these financial instruments more attractive to investors.
About Perpetual Bonds:
- Perpetual bonds are financial instruments that lack a maturity date, meaning they can theoretically last forever.
- These bonds pay a steady stream of interest indefinitely, making them a unique form of investment.
- Often considered a type of equity rather than debt, perpetual bonds are not redeemable in the traditional sense. However, investors can sell them on the secondary market or wait for the issuer to redeem them.
- They serve as fund-raising instruments, offering a fixed coupon or interest payment over time, but with no obligation to repay the principal.
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Frequently Asked Question:
Are perpetual bonds considered equity or debt?
Perpetual bonds are often considered a type of equity rather than debt because they lack a maturity date.
What are the risks of investing in perpetual bonds?
Risks include interest rate fluctuations, potential issuer default, and the lack of principal repayment.
Who typically issues perpetual bonds?
Corporations and governments often issue perpetual bonds to raise long-term capital.
How is the interest rate for perpetual bonds determined?
The interest rate is typically fixed and set at issuance, reflecting the risk and market conditions at that time.