Salaried people who are afraid to take risk in direct equity investments prefer investing through Mutual Funds. But, as you are aware Mutual Funds are subject to Market risks. Therefore for highly conservative investors Bond Market is really important avenue of Investment. Most of the big Politicians and Bollywood celebrities in India prefer to invest in Bonds. Unfortunately, retail investors have very minimum understanding of bonds and secondly they prefer SIP route of Investment in Mutual Funds over Lumpsum investment in Bonds irrespective of Low risk and fixed returns. Today in this post we will discuss some basics of Bonds.
What are Bonds?
Bonds are investment securities where an Investor lends money to a company or a Government for a set period of time, in exchange for regular interest payments. On the Maturity of period, issuer returns investor’s money. Bonds represent a loan from the buyer to the issuer of Bond. It does not give ownership rights like stocks.
Why Bonds?
Bonds provide higher returns than Fixed and Recurring deposits. They beat inflation rate.
Bonds provide a steady and regular source of income to conservative investors.
Bonds give assured returns as they aren’t linked to Market fluctuations. They are less-risky asset.
Bonds help in diversify the Investment Portfolio.
Bond are often liquid source of investment.
There are variety of bonds available in the bond Market for different needs of Investors.
Some bonds can be used to save taxes.
Bondholders enjoy legal protection in case of default.
What are Bond Markets
Bond Market is a Market where debt securities like Government bonds and Corporate bonds are traded.
Governments and Corporates raise long-term capital from issuing bonds in Bond Markets.
In Primary bond market original bond issuer sells bonds directly to the buyer while in Secondary market bonds issued in primary market are traded further.
Bond Market is less risky and less volatile compared to Share Market. It provides good opportunity to conservative investors to diversify their portfolio.
Points to remember before investing in bonds
Investors should first do their risk-profiling to understand how much percentage of their investment needs to be allocated to debt instruments.
They should check whether their investment philosophy allows them to be tolerant towards bonds investment which demands long term commitments.
What are the important points of the bonds you are opting? Investment horizon, minimum amount, coupon rate, frequency of interest payment, maturity clauses, any taxes, mode of payments, tradability, credit rating etc.
Whether coupon is floating or fixed type of interest?
Whether the Bond falls under secured category or unsecured category? What will happen in case of Default? Any legal protection available in such case? and so on.
We will see more details about Bond Market in India in future posts on this blog. This was just a basic introduction. If you liked the post, feel free to subscribe to this blog and YouTube channel of Stocksbaazigar.
Standard Disclaimer:
This blog is for educational purpose. Investors should consult their financial advisors before taking any investment decisions. This is not recommendation post and Stocksbaazigar is not responsible for any profit/loss of the reader. Thank you.