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Monday, February 6, 2023

Bond Investing: Everything you need to know

In India and abroad, there are many people who are interested in investing in the stock market, but they are deterred by the risks and fluctuations that accompany these markets. Bonds in India can be an option for those with a conservative view of investments and risks.

Bonds are debt market instruments through which lenders provide funds to bond issuers. The bond issuer promises to pay back the amount borrowed, plus interest at regular intervals during the bond period. Bond issuers may be private or public sector companies, banks, non-banking financial companies, or government agencies. Upon expiration of the bond period, the said entity promises to repay the entire amount raised, along with periodic interest payments.

A coupon is an interest payment that the issuer makes to the lender. The bond price is the total amount invested in the bond. The bond yield can be calculated by dividing the coupon amount you receive as interest on the bond by the bond price. Bond yields reflect the total return you earn on a bond.

Bonds and shares are both capital market securities, with the key difference that bonds put the lender in the position of a creditor, whereas shares place the investor in the position of a shareholder.

Governments and businesses issue bonds to finance their long-term needs and to meet their current expenditure deficiencies. Bonds are considered a safer investment than shares and other securities, so people invest in them.

Types of bonds in India.

Government Bonds:

A government issue whose maturation period is less than a year is called a T-bill, and a government issue with a maturity period over a year is called a bond. Central and state governments, as well as municipalities, issue government bonds. Considering that the government can print money at any time and repay the borrowers, these bonds are considered the safest investments.

Corporate Bonds:

Bonds issued by companies and corporations of different sizes and standing are known as corporate bonds. These bonds are issued to meet the capital needs of businesses. The investors in these funds receive regular interest payments and are repaid their bond price at the end of the bond tenure. FDs and savings accounts do not offer the same returns as corporate bonds. Investors are advised to do their due diligence before investing in Corporate Bonds, as some are known to sink.

Sovereign gold bond:

In addition to buying gold physically, these Gold Bonds are issued by the Government of India. When investing in these bonds, the investor is able to increase his wealth while at the same time earning interest. The bondholder is also exempt from capital gains tax if the bonds are held until maturity.

A sovereign gold bond carries a tenure of eight years and gives the investor the option to exit after the fifth year. Investors who pool their funds into the funds receive a holding certificate as proof that funds have been channeled into the bonds. Indian investors have shown a strong interest in these funds, since carrying physical gold has its own risks, and many people are keen on capturing the premium from the rise of gold in India, without having to hold it physically.

Convertible bonds:

In these bonds, the bond amount can be converted into equity, on terms that are predetermined.

RBI Bonds:

In 2018, the bank regulator announced the issuance of 7.75% taxable bonds in India, allowing families and individuals to invest in a safe and secure bond without any monetary limits.

How does one invest in bonds in India?

With ease and at the click of a button, Various Banks & Finance offers investors the opportunity to invest in India’s most trusted corporate and government bonds. Corporate Bond investors can choose from a variety of bonds with attractive returns and different tenures. Bonds like these are considered safe investment havens, and have been rated AAA by credit rating agencies, indicating that trustworthy companies issued these bonds, and that the risk of default is extremely low.

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