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It is the kind of bond that repays the principle in instalment at regular intervals at the time of maturity, instead of paying one time.
Such bonds are issued by the state government or centre or municipalities to fund public projects like road construction, public assets, flyovers, government investment in alternative energy etc.
Such projects may require a lot of investment at the start and once the project starts, a consistent and regular stream of cash flow may come.
These are also called revenue bonds as it can be used to pay off the debts. It can serve as long term investment option, where the paybacks on the principal are made on specific predetermined dates unlike other types of bonds.
It comes with advantages like low default risk as the principal is paid in instalment.
Such investments are considered safe and attract a larger pool of buyer and the cost of debt is low.
There can be certain risks associated with it, in conditions, when the money generated is invested in projects that face a setback.
Further, if the interest rate is declining, investors may prefer derivative contracts hedge against fluctuation in interest rate.
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