Serial Bonds


Serial bonds are the bonds which though are issued together get mature on different dates unlike other financial bonds which has a single maturity date. The bond holders of the serial bonds do not receive a lump sum amount but will receive the amount in parts at different intervals though coupons which have attained their maturity periods. These coupons are redeemed.

For example, if a person buys serial bonds worth 50,000 dollars, some bonds or coupons may have maturity  period of five years after which the bond holder would get some amount while others may mature within ten years and so on till all the bonds are matured.

Government bodies or private institutions can issue serial bonds. The funds generated by selling serial bonds are generally used to finance infrastructure or municipal projects, which are completed in phases. The payment to be made to the bond holder may be coordinated with the completion of a phase of the project. After the completion of a project, the revenue earned from the project can be used to repay some part of the amount to the bond holders.

Say the funds generated from serial bonds are used to finance a power plant, which has to be completed in three phases. After the completion of first phase, power from the power plant is sold to the consumers and the revenue earned from the sale of power can then be used to pay some money to the bond holders as first installment and so on.

For the issuer of the bonds, the main advantage of serial bonds is that he has to pay less interest as compared to other bonds. The issuer has to pay interest to the bond holder and the larger the amount, more interest he has to pay. But serial bonds issuer repays the owner or holder of the serial bonds at different intervals as compared to the coupons or bonds which reach their maturity period as a result of which, he has to pay lesser interest on the reduced amount and thereby saving his money.

Some municipal bonds and corporate bonds issue a bond which is a mixture of both serial bonds and term bonds. In such type of bonds, while some attain maturity period after regular intervals while others had only one maturity date.

In Georgia, the private colleges and Universities Authority of Georgia in 2001 issued bonds worth 211,815,000 dollars which were exempted from tax for Emory University. Out of these bonds, a majority of the bonds were issued as serial bonds which had the maturity period ranging from 2002 to 2021. The interest on these bonds also differed with a lower interest rate for shorter maturity period while the interest rate was high for the bonds with longer maturity period. The rest were issued as term bonds, which had its maturity period in 2021 at a fixed rate of interest of 5.21%. The investors could choose bonds with different maturity periods according to their own financial goals and targets and were exempted from paying state and federal tax on the income received as interest from the bonds.

Serial bonds are best investment option as the investor can choose from different maturity periods as per his preference.