Bonds are one of several investment options to invest in a company in India. However, the bond market is different from equity trading which involves stocks and shares. An individual becomes a shareholder after buying equity but a bond investor becomes a creditor to the issuer.
Let’s understand the bond market in detail.
What are Bonds?
Bonds are debt instruments with fixed income. An investor lends money to the individual, government, or corporate for a fixed period. The interest rate is either fixed or variable. The interest is known as a coupon. The owners of bonds are called the creditors or debt holders for the issuers.
Advantages of Bonds
Many investors prefer bonds for the following reasons:
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Bonds are more secure as compared to the equity or currency market in India. Bond investors know the amount of interest and payback they will get at maturity.
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If there is an event such as liquidation or insolvency, bond investors have the first claim on the company’s assets.
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Bonds are also a good way to diversify your portfolio, especially if you are looking to balance volatile investments.
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The investors get the full principal amount on maturity. Hence, it also brings the benefit of capital preservation.
Disadvantages of Bonds
The only drawback with bonds is that they usually offer low returns. But, the kind of safety they offer in terms of secured investment offsets the low returns.
Here is the primary classification of bonds:
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Corporate Bonds: These bonds are issued by private companies.
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Government Bonds: These bonds are issued by the Government of India.
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Bank and Financial Institution Bonds: These bonds are issued by banks and financial institutions.
To know more about investing in bonds click here
