What is the risk of perpetual bond?

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Perpetual bonds are unique financial instruments that differ significantly from traditional bonds. Unlike the latter, perpetual bonds do not have a maturity date, meaning investors do not receive the principal amount back. This fundamental distinction sets perpetual bonds apart and necessitates a different approach when considering them as an investment option.

The absence of a maturity date has implications for investors in terms of coupon payments. These payments, often referred to as interest payments, continue indefinitely as long as the issuer of the perpetual bond remains solvent. While this may sound appealing to some investors who appreciate ongoing income, it is crucial to understand the associated risks.

One significant risk is the potential for investors not recovering their initial investment. Since perpetual bonds do not mature, investors cannot expect to get back the principal they initially invested. This poses a challenge for long-term financial strategies, particularly for those who rely on the return of their principal to fund future expenses or achieve financial goals.

Moreover, perpetual bonds' impact on liquidity planning cannot be overlooked. The lack of a defined maturity date makes it difficult for investors to predict when they might be able to access their invested capital. This can be problematic for investors who require access to their funds at specific times, such as for retirement or emergency purposes.