If you are interested in investing your funds and seeing them grow, consider Bonds. Governments or companies sometimes need additional cash flow. They issue Bonds and ask investors to lend funds in Loans. They promise to repay the total amount at face value on a specific date with interest scheduled from the beginning.
While Stocks fluctuate according to the market value and company performance, Bonds in India are predictable parts of your investment portfolio.
How do they work?
When governments or corporations need money, they issue Bonds. Investors purchase them and lend money. Each Bond has a face value, coupon rate, maturity date, and payment frequency. The face value is the Bond amount. The coupon rate is its interest rate. The maturity date is known as the date when the investor pays the Loan to the issuer. Payment frequency is how often the Bond earns interest.
The issuer pays periodic interest to the bondholders based on the coupon rate and face value. Ultimately, they receive the face value at maturity, assuming the issuer does not default. Corporate Bonds in India allow investors to earn fixed income while lending money to governments or corporations. They promise to repay the money with interest later. Corporate Bonds are a fundamental tool for investors and issuers in the financial landscape.
Who issues Bonds?
You can purchase and sell Bonds in India on the secondary market before maturity. The prices fluctuate based on interest rate changes, issuer creditworthiness, and market demand. Entities issue them with varying terms, yields, and credit ratings, providing investors with diverse options to suit their risk tolerance and objectives, including:
- Governments: National, state, and local governments issue Government or Sovereign Bonds to fund various projects and operations.
- Corporations: Companies issue Corporate Bonds to raise capital for expansion, acquisitions, and other financial needs.
- Municipalities: Local governments, such as cities, towns, or counties, issue Municipal Bonds to lend funds for infrastructure projects like schools, roads, or utilities.
You can invest in Bonds in many ways. One of them is to buy Bonds directly from governments and corporations during the initial offering or on the secondary market through online brokerage platforms. You can also opt for Bond Funds, including Mutual Funds and ETFs, which provide diversified exposure to various Bond types and issuers.
Conclusion
Before exploring these, an investor must consider your investment goals, risk tolerance, time horizon, and factors such as fees, expenses, and tax implications options. It is also recommended to get personalised assistance from a financial advisor to earn better returns and develop a strategy suiting your risk appetite and goals.