Principal redemption type

Principal redemption type refers to the schedule and method by which a bond's principal amount is repaid to investors. It defines when and how the issuer will return the original investment to the bondholders.

At maturity

In this method, the principal amount is repaid in a lump sum at the end of the bond's term. Investors can receive periodic interest payments during the bond's life but only receive the principal on the maturity date. It is the most common redemption type, providing predictability for both the issuer and the investor.

Sinkable

A sinkable bond includes a sinking fund provision requiring the issuer to repay portions of the principal at specified intervals before maturity. This means the issue amount is redeemed in parts over the bond's life, which reduces credit risk for investors and lessens the burden of a large repayment at maturity for the issuer.

Perpetual

A perpetual bond has no fixed maturity date, meaning the principal is not scheduled to be repaid. However, in this method, investors receive interest payments indefinitely. These bonds represent perpetual debt, often issued by institutions seeking long-term capital without the obligation of repaying the principal. The issuer may have the option to call the bond, but it is not required.