The information provided are for general consumption only. Do not construe this as an offer/advice/research to buy/sell any securities
BONDS MEANING
What are Bonds?
Bonds are fixed-income instruments that give steady income to investors. Bonds can offer a more stable and predictable source of income compared to other types of investments, such as stocks, mutual funds.
State & Central Governments, Corporations like NTPC, India bulls issue bonds to raise capital for their business expansion.
The Bond issuer repays the loan, plus interest on a specified date as agreed in the Bond Purchase Agreement. Bonds are transacted in the financial markets. Their value can fluctuate based on several factors, such as changes in interest rates, bond issuer's creditworthiness and other risk factors as stated in the issuer's Information Memorandum. Investors should read all the relevant documents carefully before making investments.
COLLECTION
Types of Bonds
What is the bond market?
The size of India’s bond market is more than $1.8 trillion or ₹100 lakh crore. But what is the bond market exactly? The bond market is where borrowers like the governments, public companies and private companies borrow money from investors like individuals, mutual funds and corporates by issuing bonds. The lenders of money are called bondholders, whereas the borrowers of money are bond issuers.
Read MoreIndia’s Bond Market Success
Stock of corporate bonds has outstandingly grown by 4.5 times in the last 11 years
Higher returns than FDs, savings account
Interest rates in March, 2023
Levels of bond market
Primary market
The primary market is where bonds are issued for the first time and enter the market. Generally, sophisticated investors like HNIs and institutional investors like mutual funds buy bonds from the bond issuer directly.
Secondary Market
The secondary market is where investors can buy and sell bonds to other investors without any involvement from the bond issuer. The trading (buying and selling) of bonds can take place on a stock exchange (like BSE) or over-the-counter (OTC).
Purpose of Bond market
For companies
Governments, public and private companies can raise money at a low cost of capital and use the funds for productive purposes, thereby increasing the overall economic productivity.
For Bondholders
Bondholders can earn a rate of return on their savings which results in growth in the overall wealth of the country and its citizens.
Why should you invest in bonds?
Investing in bonds can help you in multiple ways. A few use cases of bonds are discussed below:
Low-risk investing
Diversification
Build a prosperous India
Credit Rating
Not all bonds are equal. Even the Bonds with higher Credit rating can perform bad.
Maturity Date
Staying invested until the maturity date may reduce bond risks associated with reinvestment of coupons and liquidity.
Yield to Maturity
Yield to maturity indicates the expected annual return of a bond if you stay invested until the bond’s maturity.
POPULAR BONDS
Popular Bonds in India
What are the risks of investing in bonds?
Bonds are generally associated with safety and capital protection. However, bonds are not 100% risk-free and may have several risks. Let’s look at the 4 most significant risks in bond investing:
Credit Default Risk
Interest Rate Risk
Reinvestment Risk
Liquidity Risk
BONDS CONCEPTS
Important bond concepts
Face Value
Coupon Rate
Bond Tenure
Credit Quality
Maturity
Yield to Maturity
Tradable Bonds
Accrued Interest
Call Option
Put Option
Related Articles
Still got questions? We’re here to help.
What are Bonds?
Bonds are fixed-income security that allows investors to lend money to an issuer, such as a government or corporation, in exchange for interest payments over a specified period.
Bonds in India are loans where the investor acts as the lender, and the issuer acts as the borrower. In return for the loan, the issuer promises to repay the investor the face value of the bond, along with any interest earned, at a predetermined date in the future. Bonds can be a crucial tool for issuers to raise funds and fulfill their capital requirements while providing investors with a reliable source of income.
However, investing in bonds carries risks, such as credit risk, interest rate risk, and inflation risk. Understanding the various types of bonds, their risks and benefits, and how they fit into an investment portfolio is key to making informed investment decisions.
What is the minimum amount to invest in bonds?
What happens to bonds when the owner passes away?
Can you lose money by investing in bonds?
Which bonds are considered safe to buy?
The Government of India (GOI) issued bonds that are considered to be safe to buy. State bonds or SDLs (State Development Loans) are considered almost as safe as central GoI bonds. While government bonds are safe from the ‘credit default’ perspective, they are subject to risks associated with interest rates like other (corporate) bonds.
Can we sell bonds anytime?
Is there a penalty for selling bonds before maturity?
How do I choose the best bonds for my portfolio?
When it comes to selecting the best bonds for your portfolio, it's vital to consider your financial objectives, tolerance for risk, and investment plan. For Indian portfolio holders, evaluating the credit rating of the issuer, the Maturity Date, and the Yield to Maturity is crucial in determining the best bonds to invest in. Seeking guidance from a financial advisor or conducting thorough research can aid in making informed investment choices that align with your goals and risk tolerance.
What Is The Difference Between Bond and Fixed Deposit?
Bonds and fixed deposits are popular investment options in India. Bonds are like loans you give to companies or governments, while fixed deposits are like deposits you keep with a bank. Both instruments provide stability in income and capital protection and are safer and more accessible than stocks.
Learn about the differences between Bonds and Fixed Deposits by reading our in-depth blog.
Popular Collection
Popular Issuers
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