Maturity refers to the date on which the principal or the face value of a financial instrument, such as a bond or term deposit, becomes due and is to be paid to the investor by the issuer.

Here’s a more detailed look:

  1. Bonds: When a bond matures, the bond issuer agrees to repay the bondholder the full face value of the bond. For example, if an investor buys a 10-year bond with a face value of $1,000, the bond’s maturity date is ten years from the purchase date, and at that time, the investor will receive the $1,000 back from the bond issuer.
  2. Loans: For a loan, the maturity date is the date upon which the principal amount of a loan becomes due and must be repaid to the lender.
  3. Derivatives: For a futures or options contract, the maturity date is the date at which the contract expires.
  4. Certificates of Deposit (CDs): For a CD, the maturity date is when the period of deposit ends and the money deposited, along with the agreed-upon interest, is returned to the depositor.

Knowing the maturity date of a financial instrument is important because it informs when you can expect to receive payment and is essential to assessing the risk and return of an investment.

In general, the longer the maturity, the greater the degree of price risk, meaning the bond price could fluctuate more with changes in interest rates. But longer maturities also typically pay higher interest rates to compensate for this price risk.