Before understanding “Revenue Bond”, let us understand the basics of the term Revenue.

Revenue simply means total income generated from the sale of goods and services of the company’s primary operations.

On the other hand, a bond is a loan from an investor to a borrower such as a company or a government.

A revenue bond is a type of municipal bond in which the obligated repayment of the interest and debt payment is done from the income-generating projects such as toll bridge, highway, sewer facilities, airport construction, roads, the local stadium, etc.

Revenue bonds are rated by the rating agencies basis their ability to pay back interest amount and principal amount.

These bonds share an inverse relationship to interest rates which means price falls when interest rate rises and vice versa.

Revenue Bonds are generally issued by the government and are associated with few characteristics.

Longer time to maturity-Prime purpose of revenue bonds are used for long-term projects, the bonds feature long-term maturities. The maturities for revenue bonds range between 20 to 30 years. The interest payment and the principal payment of the revenue bonds are made from the operating revenues of a project. If a project is unable to generate revenue to make the payments, the payments can be deferred to a later date.

High returns than general obligation bonds- Revenue bonds generate higher returns as compared to general obligation bonds. General obligation bonds are municipal bonds wherein the repayment of interest and the principal amount is guaranteed by the tax revenue and operating revenue generated by the projects.

No claim on assets-Bondholders do not have any claim on the asset of the projects. In case if the project fails for any reason the bondholders cannot claim to retake the possession in the project.

An issue with call provision-Bonds include the provision that the issuer can call off the issued bonds if the project gets destroyed under any uncertainly miserable events.

Guarantee in case of default-Just like other bonds, revenue bonds carry attributes of credit, interest, call, and market risks. To cover up on the default of its obligation, the issuer provides insurance on such bonds

Types of Revenue Bonds

There are a wide array of revenue bonds available for investors typically issued by State governments and local governments.

Airport Revenue Bonds: As the name suggests, these kinds of bonds are issued by a municipality or airport authority. Revenue generated via the airport itself is used to pay the bond investors

Toll Revenue Bonds: This kind of municipal bond is largely issued to direct revenue that gets collected from the toll towards the construction of a public project. The toll revenue can come from a bridge, expressway, or tunnel. The revenue that is generated is also used to pay the principal and interest payments to the bondholders

Hospital Revenue Bonds – This form of a municipal bond is meant to aid the construction of new hospitals, nursing homes, or associated buildings. The funds from these bonds may also be allocated towards purchasing new equipment for these medical buildings or can be used to fund upgrades within existing hospitals. Revenue generated via these hospitals is directed towards payments to bondholders.

Investors willing to buy revenue bonds must know how the project will generate the promised returns on a consistent frequency. It is always advisable to take guidance from experts in regard to taking any crucial decisions. Bondskart has a team of experts who could help you in every step to ensure you make an informed decision while making your bond investment. Through Bondskart you can conveniently explore and purchase bonds