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.
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.
