What is a Bondholder?

Malcolm Tatum
Malcolm Tatum

A bondholder is generally defined as an individual or entity that is the bearer of a currently outstanding and active bond. The bond that is held by the bondholder may be registered directly to the bearer, or may be an unregistered bond in some cases. As the controller and owner of a bond, the bond holder has full authority to manage the bond in any way that he or she sees fit.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

There are several advantages to being a bondholder, rather than holding stock in a company. One of the more prominent advantages is evident when the company goes through a process that involves the liquidation of assets. Bondholders are given precedence over stockholders, which means that the bondholders will receive compensation for the outstanding bonds before any of the stockholders receive returns from their outstanding shares of stock.

However, the bondholder also benefits in other ways as well. One of the receipt of regular interest payments during the life of the bond. Generally, the exact frequency and rate of interest that applies to the payments are spelled out in detail at the time that the bond is purchased. Under certain circumstances, a bondholder may choose to seek a different schedule of payment for the interest, usually in cases where the bondholder wishes to defer payments until a particular point in time.

The bondholder also is guaranteed a return of the principal at some point in the future. An arrangement of this type means that both the original investment in the bond is eventually recovered, and the generation of interest income from the venture ensures that the transaction is a lucrative one for the bondholder.

In the world of investing, choosing to purchase a bond is normally considered to be a good risk. The chances for failure are remote and the return is fairly safe. For persons who wish to focus more on safe investments, choosing to be a bondholder rather than building the financial portfolio around stocks and similar types of investments is a smart approach.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments

angelBraids

@MissMuffet - The main difference between the two types of bond is that unregistered means there is no record of the investor's name. If you have the paper you literally own it, so it could be given away without complicated ownership records being involved.

The downside of course is that if you lose it, or it was stolen, it's gone!

Potterspop

@DentalFloss - Lucky you for having an aunt with an eye to long term investment. It must be quite exciting to watch the markets and track your potential payout.

People in my family tend to be corporate bondholders, though personally I prefer the government options. They just feel safer to me.

MissMuffet

I would like to know if there is any difference in bond yields between those which are registered and unregistered.

DentalFloss

I like bonds. My aunt bought me a US Savings Bond five years ago when I graduated from high school, and it is nice to know that it's there, hidden away, waiting for when I need it. I know it will be several years probably before it is worth much beyond the surface value, but still, that means I can just forget about it for awhile and then stumble upon it when I need it.

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