Maturity refers to the date on which a financial instrument, such as a bond or loan, must be fully repaid to the investor or lender. It marks the end of the investment period.
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Maturity is the point in time when the principal of an investment is returned to the investor.
In financial markets, maturity is a key characteristic of fixed income instruments like bonds. The maturity date determines how long an investor’s capital is tied up and influences the level of risk and return. Generally, longer maturities carry higher interest rates to compensate for risks such as inflation and interest rate changes over time. Short term instruments are typically less risky but offer lower returns. Maturity also affects price sensitivity, as bonds with longer maturities tend to fluctuate more in value when interest rates change. Understanding maturity helps investors choose investments that match their time horizon and risk tolerance.
Short example:
Suppose an investor buys a bond with a maturity of 5 years.
During this period, the investor receives interest payments.
At the end of the 5 years, the bond reaches maturity and the original investment amount is repaid.
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