Bonds
Bonds are a type of debt security issued by governments, municipalities, or corporations to raise capital. When you buy a bond, you are essentially lending money to the issuer in exchange for periodic interest payments (known as the coupon) and the return of the principal (face value) when the bond matures.
Key Elements of Bonds
- Issuer: The entity that issues the bond, such as a government, municipality, or company.
- Face Value: The amount the bond will be worth at maturity, usually in increments like rupees.
- Coupon Rate: The interest rate paid by the issuer, typically annually or semi-annually, based on the bond’s face value.
- Maturity Date: The date when the bond will mature, and the issuer will pay back the face value to the bondholder.
- Market Price: Bonds can be traded in the secondary market, and their price can fluctuate based on factors like interest rates, credit risk, and time to maturity.
Types of Bonds in India
Government Bonds
Sovereign Bonds: Safest investments issued by the Government of India.
- Savings Bonds: Fixed interest rate, 2- or 5-year terms.
- Government Securities: Long-term debt by RBI on behalf of the government.
- Treasury Bills: Short-term instruments with maturities of 91 to 364 days.
Corporate Bonds
- PSU Bonds: Issued by state-owned companies like ONGC and NTPC.
- Private Corporate Bonds: Issued by private companies like Reliance and Tata, varying in risk and return.
Municipal Bonds
Issued by local governments for infrastructure projects. May offer tax-free interest under specific conditions.
Tax-Free Bonds
Issued by government-backed entities, offering tax-free interest income, typically for long durations.
Zero-Coupon Bonds
Issued at a discount and pay no periodic interest. Investors receive the full face value at maturity.
Green Bonds
Issued to fund environmentally friendly projects such as renewable energy and energy efficiency.
Infrastructure Bonds
Designed to fund projects in sectors like roads, power, and railways. These may offer tax benefits.
Popular Investment Platforms
Public Offerings
Many bonds in India are offered to the public through IPOs, available for purchase directly from issuers or financial institutions.
Bond Mutual Funds
Investors can invest in bonds indirectly through bond mutual funds, which pool money from many investors to buy a diversified portfolio of bonds.
Bonds in India
Fixed-income returns for conservative investors seeking stable returns. They are an essential part of a diversified portfolio.