What are bonds, how to invest in various bonds: If you want to avoid the risk of investing in the stock market, but want to invest in investment tools with guaranteed returns, then bonds can be the right option for you.
Investment in bonds can be adopted amidst volatility in the market. Bonds are considered quite safe, especially government bonds. How much better option for investors to invest in government bonds. Apart from this, there are many types of bonds, where the investment can give you better returns. This investment in your investment portfolio can give you regular and stable income. Here we are telling you what bonds are, how many types are there and how you can invest in them.
What are Bonds? (What are Bonds)
Bonds are debt instruments in which you give money to the bond issuer and he invests your money further. The bond issuer guarantees you that after your bond tenure is over, it will return it to you with good returns. These are considered low-risk investments and can be issued by any public company, bank NBFCs and even the government. Interest rates in bonds are called coupon rates.
There are many types of Bonds:
Government Securities Bonds: These bonds are issued by the central or state governments. They come under Government Security (G-Sec). They range from 5 to 40 years. A small investment can also be made in it. There is very little risk in this. These are issued on fixed interest.
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These include treasury bills, cash management bills, debtorized government securities, fixed rate bonds, floating rate bonds, zero coupon bonds, capital index bonds, inflation index bonds, call and put option bonds, special securities, STRIPS (Separate Trading of Registered Interest and Principal of Securities), Sovereign Gold Bonds, 7.75% GOI Savings Bonds and State Development Loans (SDLs).
Corporate Bonds: These bonds are issued by any company for a fixed period. It gets returns at the same interest rate throughout the period.
Convertible Bonds (Convertible Bonds): In this, you get the feature of both debt and equity funds, but not simultaneously. These are convertibles because they can also be converted into company shares and bondholders can become shareholders.
Zero Coupon Bonds (Zero-Coupon Bonds): You do not get interest on these bonds, but such bonds are issued at a discount and are bought back from the bond holders after a certain period of time. The difference in this is the investor's earnings. There is also no regular interest rate on bonds before maturity. They get returns annually, but it comes in their pockets when the bond matures.
Inflation Linked Bonds (Inflation-Linked Bonds): In the era of inflation, investment can be made in this bond. They are usually issued by the government. According to the inflation rate, the rates of principal and interest keep going up and down.
RBI Bonds (RBI Bonds): It is issued by the central bank RBI, these are floating rate saving bonds. The interest rate is decided on a floating basis. It is revised every six months. The bond holder gets a return every six months.
Sovereign Gold Bonds: Sovereign Gold Bonds or SGBs are also issued by the RBI. It is an alternative to physical gold. It is government securities. These are paper gold in a way, in which you invest in gold bonds on a gram basis.
How to invest in bonds? (How to invest in bonds) There can be three ways to invest in bonds. You can contact a financial broker and buy bonds like stocks. Bonds can also be purchased through mutual funds or ETFs (Exchange Traded Funds). In bond mutual funds or ETFs, you do not decide the type, whichever fund provider is investing your money.
Apart from this, you can invest in government securities through the Retail Direct Scheme, in which you can open a gilt securities account with the RBI. You can also buy bonds from nse (National Stock Exchange) website or NSE app.