Indexed bonds, Financial Management

In indexed bonds, the principal and coupon payments are linked to the market index like inflation and price index. Index bonds are attractive to investors as they are safer than the conventional bonds in terms of real interest rate risk and inflation expectation risk. Indexed bonds, apart from providing safety to investors, also provide a steady interest income from investment while keeping the principal intact. Because both coupon and principal payments of an indexed bond are adjusted for inflation, an investor can count on the steady purchasing power provided by the coupon interest payment during the life of the bond. Further, when an indexed bond matures, its principal has the same purchasing power as when it was invested. 

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