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A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debt holders, or creditors, of the issuer. Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments made by the borrower.

A Bond is a debt security, in which purchasing a bond is nothing but lending money to an authorized issuer for a specific period at a specific rate of coupon (interest). It is a formal contract to repay borrowed money with interest at fixed intervals (semi annually, annually, sometimes monthly).

Thus a bond is like a loan, the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor) and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments or in case of government bonds, to finance current expenditure. Govt. of India is the biggest issuer of Bonds. Bond market is much bigger than equity market.