Invest In Bonds
Which Offers upto 13%
Of Fixed Return

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What Is A Bond?

Bonds are financial instruments included in the debt asset class and are issued by governments or private organisations to raise funds from the general public. Governments and private organisations raise funds to ensure adequate capital for undertaking various activities.

The bond agreement between the issuer and the investor comes with the details of interest rate, terms of payment (debt servicing), maturity etc., and are listed with a face value (principal) that is repaid at the time of maturity.

The interest rate of bonds is called the coupon rate, and the interest payouts are predefined as per the agreement. Bonds are traded in the secondary markets and can be bought and sold similar to other investment instruments.

Why Invest In Bonds?

Bond funds provide a safer and steady source of income at
regular intervals. Bond investments are influenced by various market factors
such as the prevailing interest rates, bond yield, maturity or the issuer's credibility.

Bonds’ fixed income market can provide you returns as high as 9 – 10% per annum or more. Investments in Bonds and Debentures are more rewarding and reliable mode of growing your money than the existing options of fixed deposits and mutual funds.

Safe investments like bonds and debentures, help you to stabilise your portfolio and helps you to hedge your risk against other investments.

The Coupon or Coupon rate is the interest rate paid by fixed-interest security such as Bond/ Debenture. It is the annual payment towards the face value of a bond. This interest will be credited to the your accounts at set predefined frequency

For interest earned from Taxable Bonds, the earnings are taxable. However, for interests earned from Tax-Free Bonds, the earnings are 100% tax-free. Also, capital gains earned from selling any Bond (taxable and tax-free) before maturity are subject to capital gains taxation rules.

Types Of Bonds

  • Government
    Bonds

    The GOI issues bonds
    to meet its capital
    and financial requirements
    for development and management
  • Zero Coupon
    Bonds

    Zero-coupon bonds
    do not pay interest,
    but they are sold at a discount and
    return full face value on redemption
  • Sovereign
    Gold Bonds

    Sovereign Gold Bonds
    are denominated in multiples of
    gram(s) of gold and are
    substitute for physical gold
  • Corporate
    Bonds

    Large corporations & financial
    institutions issue bonds at
    a good rate of fixed returns
    and higher risk percentage
  • Inflation
    Linked Bonds

    Inflation-Linked Bonds (ILBs)
    are bonds for which the principal value varies with
    inflation and protects
    from inflation risk
  • Convertible
    Bonds

    Convertible Bonds are the bonds
    that can be converted
    into a predetermined number
    of common stock or equity shares
  • Municipal
    Bonds

    The Municipal Corp. issues
    bonds to finance
    public projects such as
    schools, hospitals, parks, roads, and bridges

Start Investing In 3 Simple Steps

  • 01

    Complete KYC

    Upload Your Documents Online
  • 02

    Choose Bonds

    Select Bonds That Matches Your Investment Goals
  • 03

    Make Investment

    Pay Online and Receive Bond Units In Your Demat Account

What are Bonds and Debentures?

Bonds and debentures are debt investment instruments with a Fixed Rate of Return and Fixed Maturity Period. While Bonds are securities that are mostly issued by the government, debentures are always issued by corporations.

Bonds and Debentures are issued by these entities to raise money from investors as loans used to fulfill business objectives like entering new markets, starting a new project, or scaling existing businesses. For every bond/debenture issue, fixed interest payments (Coupons) are made regularly on pre-specified dates. The principal loan amount(face value per unit of Bond/ Debenture) is paid back on the pre-specified maturity date.

What are Features of Bonds?

Bond funds provide a safer and steady source of income at regular intervals and have the following features:

Face Value: It is the value of the bond when it is first issued by the company. However, after the bond starts to trade in the secondary market, the face value changes to trade either at a discount or premium from the actual face value.

Coupon Rate: It is the actual rate of interest attached to the bonds and determines how much interest the issuer will provide to the holders of the bonds regularly. For example, if a 10-year bond with a face value of Rs 10,000 has a coupon rate of 5%, it will provide Rs 500 as interest payments.

Credit Quality: Every bond comes with a credit rating provided by various credit rating agencies. The rating is based on the financial condition of the issuer and whether it has enough money to fulfil the payment promises. The higher the credit rating, the safer the bond investment

How does Bond work?

Although governments and private organisations can raise funds through disinvestment or public issues such as IPOs, the issues can not provide a steady stream of capital. Hence, government and private organisations issue bonds to ensure they raise adequate capital.

Bonds work similar to other debt instruments and come with the obligation on the issuer’s part to provide regular interest payments to the holder and the repayment of principal at the time of maturity. After completing the bond investment, the issuer pays interest to the holders of the bonds based on the coupon specified at the time of the bond issuance.

Once they are issued and start trading in the bond market, investors can either hold them until maturity to realise all possible interest payments or can sell them to other investors to make profits based on the difference between the prevailing bond price and the face value. However, if the bonds are sold to a new buyer, the issuer is liable to pay interest to the new buyer at the time interest is due.

How to Invest in Bonds?

You can invest bonds in India through the following options:

Through a Broker: You can invest in bond funds from an online stockbroker by opening a Demat and a trading account.

Through ETFs: You can invest in bond ETFs that are listed on various stock exchanges and invest the money across various types of bonds such as corporate, government etc.

What Factors should you Consider before Investing in Bonds?

Bonds, like every market-linked instrument, also carry a level of risk. However, you can further mitigate the risk level attached to bonds investments by considering the following factors before investing in bonds in India:

Prospectus: Before you invest in a specific bond, it is critical to read and analyse the prospectus in detail. Every issuer is mandated to file a prospectus that includes everything you need to know, such as face value, tenure, coupon rate etc. You should read the prospectus to ensure the investment is ideal.

Credit Rating: Before investing, make sure that the credit rating is equal to or above AA to ensure the negligible risk of default. Consider the financials of the company to ensure its cash flow is positive.

Price Risk: Price risk is the sensitivity of the bond price to changes in the interest rates in the market. Analyse the price risk associated with the bond to understand how much the bond price can fluctuate if the interest rates change in the future.

Stockbroker: Stockbroker plays an important role in easing the bonds investments and provides a link between the investor and the bonds market. As you will be opening a Demat and trading account with the stockbroker to invest in bonds, choosing an ideal stockbroker is important.

Types: There are numerous types of bonds, such as government bonds, corporate bonds, zero-coupon bonds, floating-rate bonds, convertible bonds etc. The bonds you choose should complement your financial goals and should be at par with your risk profile. You can consult an investment advisor to choose the ideal bond type before investing.

Frequently Asked Questions

You can open a Demat and a trading account with a stockbroker to invest in the bond market in India directly.

Bonds are debt instruments that are different from shares as they provide regular interest payments to the holders and repay the principal amount, unlike shares.

Yes, the interest received from bonds is taxable as per the applicable income tax slab.

Bonds differ from debentures as collaterals or physical assets back them, while such collaterals and assets do not back debentures.

Yield to maturity is the total rate of return that the bondholder stands to earn after earning all the interest payments and principal repayment.

Duration in bonds is the tenure of bonds. It is the period until the maturity of the bonds and determines the period of interest payments.

You can find your DP ID and Client ID in the profile section of your broking account.

  • If your DEMAT is with CDSL, both the DP ID and Client ID will be eight digits each. For example: If 0577057744224422 is the Demat number/ID, then DP ID is 05770577 and Client ID 44224422.

 

  • If your DEMAT is with NSDL - both DP ID and Client ID will be of 8 characters each where the starting characters are ‘IN,’ and the following characters will be numeric. For example: If IN12345678912345 is the Demat number/ID, then DP ID is IN123456 and Client ID 78912345.

Alternately, you will find your DP ID and Client ID in your E-CAS statements that are sent to your email id associated with your broking account.
 

For Bonds/Debentures, the money automatically gets remitted to your bank account on the date of maturity.

The Interest payouts from Bonds get credited to the Bond Holder’s Bank account that is attached to his/her Demat account.

Once your order is confirmed, bond units will be credited to your Demat account on T+1 day i.e. next trading day.

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