Bonds are fixed-income securities issued by corporations and governments to raise money. They help you keep your investment portfolio diversified and balanced, with their low sensitivity to bear and bull runs.
Different types of bonds are available for investment in India. This article will explore some of the most common types of bonds, their features, and their benefits.
1. Government bonds
These are issued by the central and state governments in India. They carry either a fixed or a floating coupon rate and provide returns on a half-yearly basis. These are risk-free bonds as they come with sovereign credibility. Unlike treasury bonds, government bonds come with a long-term maturity period of 5-40 years. These bonds come with no tax deducted at source (TDS) and allow you to pay your taxes according to your income tax slab.
2. Sovereign Gold Bonds (SGBs)
SGB bonds, issued by the Reserve Bank of India (RBI) on behalf of the central government, are priced according to the price of gold of 999 purity in the commodity market. Thus, holding SGBs is equivalent to holding physical gold.
They provide a fixed bond yield of 2.5% p.a on a half-yearly basis. RBI provides a discount of Rs. 50 per gram to those who buy Sovereign Gold Bonds online.
3. Corporate bonds
As the name suggests, corporate bonds are issued by corporations for meeting their financial needs. They generally feature a fixed coupon rate which is higher than government securities and fixed deposits; however, they carry a credit risk. If you are looking for a bond with high liquidity, you could consider these bonds as they come with short-term tenures ranging between 1-4 years.
4. Public sector bonds
Public sector companies featuring a government holding of more than 50% issue them. They offer a higher rate of return than traditional investment plans and come with medium to long-term tenures. The taxation for these bonds is done as per the income tax slab of the investor. Like government bonds and Sovereign Gold Bonds, they also feature a minimal to no risk of default.
However, they can be subject to risk in the event of low performance registered by a public sector undertaking. Thus, the discretion of the investor must be exercised.
5. High-yield bonds
These are the bonds generally issued by newly launched companies that are yet to build a reputation in the market. Thus, they feature a high credit risk and provide a relatively higher return than corporate bonds and public sector bonds. High risk-taking investors who are on the lookout for quick gains can consider these bonds.
However, you must study the risk profile of the bond before putting in any money.
Bonds are a good investment option for individuals wanting to earn a regular income.
For expert advice on bonds or stocks or any other investment avenue in general, you could always consult an expert to get all your queries resolved, and your investment journey started.
