Invest in Bonds
What are bonds?
Indian investors have different types of bond investment options available to them, which include government bond, tax-savings bonds, corporate bonds, and investment bonds.
Two types of bonds are available to invest in market, i.e. short term bonds and long term bonds. Bonds are the easiest way for the government and companies to borrow money. Instead of borrowing money from bank at a high interest rate, a company or government can sell bonds to a large group of investors to raise the funds they need for operation or growth.
A bond is a debt security that an investor buys from the government or from a corporate and holds on to it until the date of maturity. On that date, the, bond issuer pays back the interest accrued on the bond in full.
What are government bonds?
Securities that the Indian government issues, government bonds help the Indian government in financing the government spending. Since government bonds are issued by the Indian government, default in payment is highly unlikely. Therefore, investors in India generally tend to consider government bonds as a highly safe instrument for long-term investment.
However, before investing in government bonds their money in government bonds, investors need to remember the following:
- Government bonds are a debt instrument.
- These bonds are issued by the government in home currency. Ones issued in foreign currency are called sovereign bonds.
- They are issued for a fixed tenure of 10, 20, and 30 years.
- Government issues them to borrow money from the general public.Therefore, government pays interest to the investors.
- The name of the government bond issued by India is the ‘India Government Bond 10Y’.
What are corporate bonds?
Debt securities issued by a public or private company incorporated under the Companies Act, corporate bonds help companies in raising money for funding new plant investments, purchasing new equipment, or promoting business growth.
A company issues a corporate bond to investor and in return, promises to repay the whole principal and interest lent by the investor to the company on the date of maturity. During the course of the investment tenure, the company generally pays the interest accrued on the corporate bond investment either semi-annually or annually.
Benefits of investing in corporate bonds:
- Higher liquidity
- Widespread options with regards to maturity and investment term
- Strong credit rating, which leads to highly predictable cash flow, interest and principal repayment, and value of the bond not diminishing over the length of the term.
Know more about the ongoing corporate bonds
How to invest in bonds?
Bond purchases first depend on the value of the bonds being purchased by the investor. If the value of the bonds is Rs 10 lakhs or above, investors need to trade in such bonds in the Wholesale Debt Market (WDM) of the NSE or BSE. Large institutions or HNIs essentially invest in such high-value transactions. These transactions are normally settled either on the same day, which is T+0 or T+1 that is the next day.
Retail investors can invest in corporate bonds by purchasing them online through retail broker using an online broking platform through either the CM (Capital Market) segment on the NSE or the F Group on BSE. It is highly advisable for investors to break up a large lot of bond investments into smaller lots and purchase it over the course of a few days.This is because large quantities of bond purchases may be subject to spike in prices. Another point to note for bond investors is that just like shares, bonds have a scrip code.Moreover, the settlement cycle for bonds is the same as shares.
Disclaimer : *investment in securities market are subject to market risks, read all the related documents carefully before investing