What are bonds?
Bonds are issued by Government and private-sector entities to raise money for a definite purpose. Interest-bearing certificates, bonds are akin to a loan that carries a specific rate of interest, which must be repaid on time.
Generally, bonds are issued when funding requirement of organizations can’t be met from any other source. With a specific maturity period, the money is returned to the lender upon the completion of the tenure with the applicable interest.
Types of bonds
To invest in the right bond, it’s important for you to understand the various types of bonds available in the market. Some of them are:
- Government bonds As the name suggests, this type of bond is issued by the Central Government in order to raise money from the public. A risk-free investment, it is ideal for investors with a low-risk appetite.
- Corporate bonds Large financial corporations and entities issue corporate bonds. While the returns are higher from these bonds, so is the element of risk. Before investing in corporate bonds, it’s important for you to do thorough research about the company and learn about its management philosophy. To be on the safe side, it’s essential to opt for corporate bonds from reputed firms.
- Public sector bonds These bonds are issued by public sector entities where the contribution of the central government is more than 50%. Just like Government bonds, these are considered to be safe investment instruments offering stable returns.
- High yield bonds Firms that have forayed into business recently offer these bonds. While these have the potential to offer high returns, they are pretty risky too. If you have a high-risk appetite, you can invest in high yield bonds.
- Municipal bonds These bonds are issued municipal bodies. As per SEBI rules, these bonds have a maturity period of 3 years. As these bonds are backed by the State Government, they are relatively safe bets.
- Less risky Since bonds are backed by Government and corporate entities in most cases, their risk quotient is lower than equities. This makes bonds less risky.
- Regular source of income
Advantages of investing in bonds
Some bonds pay interest on a regular basis at a pre-defined interval. These help investors get a steady source of income.
To sum up
If you are looking for a relatively safe debt instrument, you can look forward to bonds issued by the Government or trusted corporate entities.
Click here to open an online trading account.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
How to save on gift tax in India?
You need to pay taxes on gifts which exceed the limits set by the Government. However, gifts of any amount received or given from relatives including parents and spouse are tax-free.
6 Factors for Rising Health Insurance Premiums
While the demand for health insurance policies has certainly increased, there has also been a rise in the premium costs. Read this post to know the top factors that lead to an increase in the premiums of health insurance.
What Is FTSE And Why Does It Matter?
Informally referred to as the ‘footsie’, FTSE is a joint venture between the London Stock Exchange and the Financial Times of London. The acronym stands for Financial Times and Stock Exchange, and the indices of this joint venture comprise UK’s most highly-capitalized companies that are listed on the London Stock Exchange.
5 Types of Business Loan For Woman Entrepreneurs
There are now many different types of loans options in India for women wanting to explore their entrepreneurial dreams. Read this post to know 5 of the most popular options.