Bond Certificate

What Is A Bond Certificate?

A bond certificate refers to a legal instrument that serves as evidence of an investor's (bondholder's) ownership of a debt security of bonds. It contains crucial information related to the terms of bond indebtedness and its repayment, like the bond's face value, issuer's name, interest rate, maturity date, etc.

Such a document often flows from the government or a corporation seeking funds from the public in exchange for a particular interest payable periodically or annually until the maturity date. The issuing entity provides these certificates to investors in physical or electronic form. While all the bonds are not registered, the registered bond certificates bear the bondholder's name. 

Table of contents

• What Is A Bond Certificate?
  • Bond Certificate Explained
  • Features
  • Examples
  • Bond Certificate vs. Bond Indenture
  • Frequently Asked Questions (FAQs)
  • Recommended Articles
• A bond certificate is a legal record of a bond's ownership that also states the critical information related to a debt instrument and the repayment terms of indebtedness.
• It mentions the issuer's title, bond's face value, maturity period, interest rate, payment terms, bond terms, and issuer's representative's signature.
• While bond certificates were traditionally issued as physical documents, technological advancement transformed them into electronic formats. Also, it is a compulsory document for the unregistered bearer bonds.
• It differs from a bond indenture, which is a legal agreement between a bond issuer and an investor stating their responsibilities and rights.

Bond Certificate Explained

A bond certificate is a piece of paper that proves an investor's legal possession of the bonds. Such a document is mandatory for bearer bonds, which are unregistered and don't have the investor's name on them. The holder of a bearer bond certificate is liable to receive the interest payments and the principal sum on the due dates mentioned on such a document. However, some bonds are registered, and the respective bond certificate has the name of the bondholder on it.

Let us now go through the various details stated on such a certificate:

1. Issuer's Name: It primarily mentions the name of the issuing entity or organization (i.e., the corporate or government borrower).
2. Bondholder's Name: These certificates hold the name of the individual or entity that possesses the bond only when duly registered.
3. Face Value: It also discloses the nominal or par value of the bond at which it will be redeemed on maturity.
4. Interest Rate: Such a document bears the interest rate at which the bond accrues interest, which can be either fixed or variable.
5. Maturity Date: It also states a predetermined date when the bond matures, and the bond issuer must repay the face value to the bondholder.
6. Terms of Payment: It specifies how and when interest payments will be disbursed, including the payment frequency.
7. Unique Identification Number: It reads an exclusive number assigned to the bond for tracking and verification purposes.
8. Terms and Conditions: It specifies the various terms, conditions, actions, and restrictions the issuer and bondholder must adhere to during the bond's lifespan.
9. Signatures: These certificates have the signatures of the authorized representatives from the issuer, adding to their credibility.

10. Security Features: It often includes elements like watermarks or holograms to ensure the bond's authenticity and prevent counterfeiting.

    This topic opens up many avenues for further exploration. If you’re intrigued by these concepts, this Crash Course in Bonds might provide additional insights and hands-on experience.

Features

A bond certificate serves as a crucial document due to its following key characteristics:

1. Issuer's Title: Such a certificate discloses the organization's name that issues the bond.
2. Ownership Evidence: It serves as proof of bond investment and possession by an investor.
3. Transferability: These certificates can be easily transferred when the underlying bonds are sold to a third party.
4. Legality: Bond certificates outline the terms and conditions of the respective debt instrument, offering legal protection to both parties.
5. Bond Type: Such a document also discloses whether a bond is registered, unregistered, or bearer.
6. Bond Terms: It provides all the terms and conditions pertaining to the respective bonds, including the criteria for the interest payment and repayment of the indebtedness.
7. Authenticity: Such a document is authenticated with the signature of the designated representative of the issuing organization.

Certificates offer tangible proof of ownership, which boosts the investor's confidence and security. Also, they are easily transferable, facilitating the investors to sell or transfer bond ownership efficiently. These certificates help the investors conveniently track and manage their investments, thus acting as a formal investment record. However, there are various limitations to physical certificates. While paper-based certificates are susceptible to damage or loss, their transferability is also more cumbersome. Also, these legal documents' printing, handling, and storage costs make the investment expensive. Furthermore, people may perceive paper certificates as an old-school format in the digital age.

Examples

Moving ahead, let us now understand how a bond certificate sample looks at a glance with the help of the examples below:

Example #1:

Certificate No.: 12345

Issuer: XYZ Corporation

Face Value: $1,000

Interest Rate: 5.0% per annum

Maturity Date: December 31, 2030

This certifies that is the registered owner of a bond issued by XYZ Corporation under the specified terms. The issuer promises to pay the bondholder annual interest payments at a rate of 5.0% on the face value until maturity. Upon maturity, the bondholder is eligible for the full face value redemption.

Issued on .

XYZ Corporation

Example #2:

Another example of a bond certificate is:

The above bond certificate numbered 1 and amounting to $15,000,000, belongs to Aptorum Group Limited, a company incorporated in the Cayman Islands. This certificate verifies that Peace Range Limited is the registered holder of 8%. Convertible Bonds due in 2019, with a principal amount of $15,000,000. The issuer, Aptorum Group Limited, commits to pay the bondholder according to the terms and conditions outlined in the certificate. The Bonds are convertible into fully-paid class A ordinary shares of the issuer, and their registration is necessary for entitlement to payments.

Bond Certificate vs Bond Indenture

The bond certificates and bond indentures are the different types of bond-related documents. They hold the following dissimilarities:

Frequently Asked Questions (FAQs)

1. What is the importance of a bond certificate?

The bond certificate holds paramount importance as it serves as tangible proof of ownership for bondholders. It outlines critical details, including the issuer's name, face value, and bond terms. Investors rely on it for authentication and as a legal document that entitles them to receive interest payments and the principal amount upon maturity.

2. What are the 3 key pieces of information on a bond certificate?

The three crucial pieces of information on a bond certificate are the issuer's name, face value, and interest rate. These details provide essential information about the bond, helping investors make informed decisions. The issuer's name ensures clarity on the entity responsible, while the face value and interest rate determine the financial aspects of the investment.

3. What is a duplicate bond certificate?

A duplicate bond certificate is a replacement document issued when the original is lost, damaged, or requires updating. To obtain a duplicate, bondholders must follow a verification process to prove their ownership. Issuing duplicate certificates helps safeguard investors' interests, ensuring the security and continuity of their bond investment even in unforeseen circumstances or administrative issues.

Recommended Articles

This has been a guide to what is a Bond Certificate. Here, we explain its examples, features, and comparison with bond indenture. You can learn more about financing from the following articles –

• Coupon Bond Formula
• Negotiable Certificate Of Deposit
• Perpetual Bond