Bonds: Earn up to 12% returns

Types of bonds in India

Bonds in India can be classified based on various factors like bond issuer, bond tenure, bond security, taxation etc. Below we introduce you to some of the most popular bond types in India.

Government Bonds in India

Government Bonds in India are issued by the central or state governments to finance public welfare projects and infrastructure development. Considered among the safest investment options, government bonds are available in tenures as short as 91 days (T-bills) and as long as 40 years (Dated G-secs).

Dated G-Secs vs. T-Bills vs. SDLs

Dated G-Secs, T-Bills, and SDLs are three most commonly issued government securities in India. While Dated G-Secs (Dated Government Securities) and T-Bills (Treasury Bills) are issued by the central government, SDLs (State Development Loans) are issued by the central government. But that's not it, these instruments have many similarities and differences that we have discussed in a detailed article.

Corporate Bonds in India

Just like governments, companies need to raise money to finance their projects and equipment. Bonds issued by companies are called Corporate Bonds. When you invest in a corporate bond, you receive a periodic interest payment and your principal is returned when the bond matures. Bond tenures of corporate bonds are generally shorter than those of government bonds.

Sovereign Green Bonds

Green bonds are bonds issued to finance environmentally responsible and sustainable projects. While green bonds is a nascent instruments, a few companies in India have been issuing them for some time now. Recently, the government of India also decided to issue green bonds and these are referred to as Sovereign Green Bonds.

SGB Bonds

The RBI made the average Indian investors very happy when they launched SGB or Sovereign Gold Bonds in 2015. Gold is probably India’s most loved instrument and a gold investment packaged in a government guaranteed bond has really worked well. Since 2015, more than Rs. 30,000 crore worth of Sovereign Gold Bonds have been sold by the RBI. But what makes SGB Bonds such a great way to invest in gold? We have covered this in a detailed article.

Tax free bonds

Until a few years ago, specific government owned PSUs would issue ‘tax-free bonds.’ to attract investors and raise funds. However, as the bonds market evolved, the tax exemption feature was no longer required to attract investors. There are many interesting things to know about tax-free bonds. Who issued them? Were both interest payments as well as capital gains tax exempt? We have answered these questions and a few more in a detailed article.

Zero Coupon Bonds

Zero coupon bonds are fixed income instruments that don't make regular interest payments to the bondholders. Zero coupon bonds are excellent options for investors who are not looking to generate recurring interest payments from their low bonds. Another advantage zero coupon bonds have is that their reinvestment risk is zero.

BHARAT Bonds

BHARAT Bonds were launched in 2019 via the BHARAT Bond ETF, the first corporate bond ETF of India. BHARAT Bonds are a government initiative to enable public sector enterprises or PSU to raise money via debt instruments at a low cost. On the other side of things, it allows retail investors to invest in some of the safest corporate bonds at a very low cost.

Electoral Bonds

Unlike regular interest paying and tradable bonds, electoral bonds are just currencies to make political donations. The finance ministry introduced electoral bonds in 2018 to make political donations more transparent among other positive changes in the political donation system. But they have also attracted a lot of criticism from political experts and even the Election Commission of India.

Important bond concepts

Bonds are complicated instruments. For example, bonds in India go by two names: Bonds and Debentures. Bond also have two types of returns: YTM and Coupon rate. We have written detailed articles on these topics that will help you understand these terms and become a bond pro.

Bonds vs. Debentures

In India, bonds and debentures are the terms used to refer to fixed income instruments. And while these terms are used quite interchangeably, there are some subtle differences between bonds and debentures. For example, did you know that government securities in India are always called bonds and never debentures?

Bond yield vs. Interest rate

The most confusing aspect about bonds is returns. Whenever you come across a bond you will see two percentage figures that represent bond returns: Bond Yield or Yield to Maturity and Bond Interest Rate or Coupon Rate. And while more often than not these numbers have similar values with minor differences, they represent two very different bond attributes. So which one should you rely on to understand what returns will you generate from you investment?