Callable bonds allow the issuer to redeem the bonds prior to their original maturity date. Such bonds have a call option in the bond contract, which lets the issuer alter the tenor of the security. For example, a 10-year bond may be issued with call OPTIONS at the end of the 5th year such as in the SBI bond illustration below. Such options give issuers more flexibility in managing their debt capital. If interest rates decline, an issuer can redeem a callable bond and re-issue FRESH bonds at a lower interest RATE.

A Puttable bond gives the investor the right to seek redemption from the issuer before the original maturity date. For example, a 7-year bond may have a put option at the end of the 5th year. If interest rates have RISEN, Puttable bonds give investors the ability to exit from low-coupon bonds and re-invest in higher coupon bonds.

Callable bonds allow the issuer to redeem the bonds prior to their original maturity date. Such bonds have a call option in the bond contract, which lets the issuer alter the tenor of the security. For example, a 10-year bond may be issued with call options at the end of the 5th year such as in the SBI bond illustration below. Such options give issuers more flexibility in managing their debt capital. If interest rates decline, an issuer can redeem a callable bond and re-issue fresh bonds at a lower interest rate.

A Puttable bond gives the investor the right to seek redemption from the issuer before the original maturity date. For example, a 7-year bond may have a put option at the end of the 5th year. If interest rates have risen, Puttable bonds give investors the ability to exit from low-coupon bonds and re-invest in higher coupon bonds.