InvestmentFinancial Glossary
Coupon Rate
Definition
The annual interest rate paid by a bond issuer to the bondholder, expressed as a percentage of the face value. A bond with a face value of Rs 1,000 and a coupon rate of 7% pays Rs 70 per year in interest, typically in semi-annual instalments of Rs 35.
Why It Matters
Coupon rate is fixed at issuance and does not change with market conditions. When market interest rates rise above the coupon rate, the bond's market price falls below face value (trading at a discount). Understanding this inverse relationship is essential for debt fund investing.