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    Bonds: Generate up to 12% returns

    Explore the wide range of bonds available in India!

    bonds of india

    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.

    COLLECTION

    Types of Bonds

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    Tax free bonds

    Pay 0% tax on interest payments. Issued by high quality PSUs. AAA-rated.

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    PSU bonds

    Bonds issued by govt owned Public Sector Undertakings

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    AAA Rated Bonds

    Considered to have the highest degree of safety

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    Secured bonds

    Bonds that have specific tangible asset(s) as collateral

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    Perpetual Bonds

    It is a fixed-income security with no maturity date.

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    Capital Gain Bonds

    One of the best ways to save long-term Capital Gains Tax

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    Zero Coupon Bonds

    These are issued at a discount but redeemed at the principal amount.

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    Market Linked Debentures

    Offer returns based on the performance of an underlying market index or instrument.

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    BOND MARKET

    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?
    Read More

    India’s Bond Market Success

    Stock of corporate bonds has outstandingly grown by 4.5 times in the last 11 years

    Source

    Higher returns than FDs, savings account

    Interest rates in March, 2023

    3%

    Savings Account

    6.5%

    Fixed Deposits

    7.8%

    Government Bonds

    12%

    Corporate Bonds

    Why invest in bonds

    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

    Bonds offer a low-risk investment option. They can act as stepping stones towards the capital market for traditional fixed deposit investors with the opportunity to earn higher returns at only a slightly higher risk.

    Diversification

    Bonds can help you diversify your investment portfolio if it is equity heavy. Adding bonds and creating a diversified portfolio will help you create a stable portfolio without compromising on returns.

    Build a prosperous India

    By investing in bonds, you are not only investing your savings but also helping the bond issuers conduct their operations and create a prosperous future for India.
    EVALUATING BONDS

    How to identify
    the right bonds

    Credit Rating

    Credit Rating

    Not all bonds are equal. Even the Bonds with higher Credit rating can perform bad.

    Maturity Date

    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

    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

    Bond Instrument
    INDIA
    AAA

    7.40% Rural Electrification Corporation Limited - AAA Rated (INE020B08DO8)

    ActivePSUUnsecured

    Min Investment
    ₹10,00,00,000
    Coupon Rate
    7.40%
    Payment Frequency
    Annually
    Return Type
    Taxable
    Bond Instrument
    CRISIL
    AAA

    8.75% National Highways Authority Of India - AAA Rated (INE906B07DF8)

    ActivePSUSecured

    Min Investment
    ₹1,00,000
    Coupon Rate
    8.75%
    Payment Frequency
    Annually
    Return Type
    Tax-Free
    Debenture
    INDIA
    A

    9.75% Navi Finserv Limited - A Rated (INE342T07213)

    ActivePrivate SectorSecured

    Min Investment
    ₹1,00,000
    Coupon Rate
    9.75%
    Payment Frequency
    Annually
    Return Type
    Taxable
    Bond Instrument
    CRISIL
    AA

    9.45% State Bank Of India - AA Rated (INE062A08199)

    ActivePSUUnsecured

    Min Investment
    ₹10,00,00,000
    Coupon Rate
    9.45%
    Payment Frequency
    Annually
    Return Type
    Taxable
    Risks

    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:

    ICON

    Credit Default Risk

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    ICON

    Interest Rate Risk

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    ICON

    Reinvestment Risk

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    ICON

    Liquidity Risk

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    When you invest in bonds, you are essentially lending money to someone. Credit default risk is the risk that the borrower will not pay you back.Credit default risk varies across corporate bonds and is considered to be zero for government bonds.
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    When the market interest rates go up, existing bond holders are left holding bonds that are no longer attractive. So, the prices of existing bonds drop. This is known as interest rate risk and all bonds are affected by it, especially bonds with long tenure.
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    Reinvestment risk is the risk the bond’s coupons will get reinvested at an interest rate lower than the bond’s interest rate. This risk materializes if the interest rates in the market fall during your investment period and also affect the bond’s total returns.
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    As a bond seller, you want a healthy trading volume so that when you sell the bond, it has demand and can fetch you the bond’s fair value. Liquidity risk is that you will not be able to sell your bond at a fair price. It generally affects bonds with low trading volumes.

    CONCEPTS

    Important bond concepts

    Face Value

    Face value is the amount the bond promises to pay on maturity. Also known as par value, it is decided by the bond issuer before the bond issuance.

    Coupon rate

    The coupon rate determines the coupon or interest payment (in rupee terms) the bondholders are eligible to receive as long as they own the bond.

    Bond Tenure

    Bond tenure is the period for which the bond will be active. Unlike maturity, which indicates the bond’s life at the time of issuance, tenure indicates the bond’s remaining life.

    Credit Quality

    A bond’s credit quality reflects the bond issuer’s trustworthiness. The credit rating assigned by independent credit rating agencies represents each bond’s credit quality.

    Maturity

    Maturity is the period of the bond’s total life. Unlike bond’s tenure, which indicates the bond’s remaining life and changes, maturity is fixed and indicates the entire life of the bond.

    Yield to maturity

    Yield to maturity or YTM indicates the total annual return expected if you invest in the bond on a given day and hold it until maturity. YTM assumes that the coupons or interest payments are reinvested at the YTM.

    Tradable bonds

    Tradable bonds are bonds that can be traded by market participants either on an exchange (like BSE) or over-the-counter (OTC).

    Accrued interest

    Accrued interest is the interest that a bond has accrued since the last interest payment but has yet to be paid out to the investor.

    Call option

    If a bond has an embedded call option, it means that the bond issuer has the right (but not the obligation) to call the bond back at specific points in time or when specific conditions are met.

    Put option

    If a bond has an embedded put option, it means that the bondholder has the right (but not the obligation) to return the bond to the issuer at specific points in time or when specific conditions are met.

    Still got questions? We’re here to help.

    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.

    The minimum investment for most bonds is Rs. 10,000. However, for some bonds like SDLs the minimum investment required could be as high as Rs. 10,00,000.
    If the bond owner nominates someone, the nominee becomes the bond owner. The nominee could be a legal heir, like a spouse, child, parent or any relative nominated by the bond owner. In cases where the nominee is not the legal heir, he/she is obliged to transfer the Bond to the legal heir as per the probated will of the Bond owner. If there’s no nominee for the investment, a legal heir can transfer the bond ownership to himself/herself by presenting required documents like the probated will or the Legal Heir Certificate or Succession Certificate and Death Certificate. It is strongly recommended to nominate someone, especially for long-term bonds, to save your family troubles during the ownership transfer.
    Yes, you can lose money by investing in bonds in two situations. First, if the bond issuer defaults on interest or principal payments. Second, you redeem the bond before maturity when market interest rates have increased. Bond price and market interest rate are inversely related so the price of existing bonds fall when market interest rates go up.

    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.

    Most bonds are listed and can be sold on the exchange (NSE or BSE) anytime if buyers are available, but the redemption process is not straightforward and may require a broker's service.

    There is no penalty for selling bonds before maturity in most cases. However, there may be implications like losing money or paying higher taxes when you sell bonds before maturity.

    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.

    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.

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