Discount Bond
A bond trading below its face value, because its coupon is lower than the yield the market currently requires.
Formula
Test: Market Price < Face Value, which implies Yield to Maturity > Coupon Rate
Unit
₹
In depth
A bond trades at a discount either because rates have risen since it was issued or because its credit has deteriorated, and the two causes have very different implications — the first resolves at maturity, the second may not. The discount is part of the return: a bond bought at ₹950 and redeemed at ₹1,000 earns ₹50 of capital gain in addition to its coupons, which is why yield to maturity exceeds current yield for any discount bond. In India this capital component is taxed differently from the interest, which matters for after-tax comparisons. A deep discount is a warning to examine why, not an invitation.
Worked example
An 8% bond at ₹950 with five years left has a current yield of 8.42% and a yield to maturity of about 9.23%. The 0.81-point difference is the ₹50 of discount spread across the five years.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Discount Bond” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.