Bonds & FD
Bonds & FD
Investment Bonds in India
- What are Investment Bonds?
Investment bonds are debt securities issued by governments, corporations, or financial institutions to raise capital. When you purchase a bond, you’re essentially lending money to the issuer in exchange for periodic interest payments and the return of principal at maturity.
Key Features: Fixed returns, lower risk than equities, regular income, capital preservation
Types of Bonds in India
Government Bonds (G-Secs), Corporate Bonds, Tax-Free Bonds, Infrastructure Bonds, RBI Floating Rate Bonds, Sovereign Gold Bonds, Treasury Bills
- Benefits of Bond Investment
Steady Income: Regular interest payments provide predictable cash flow
Capital Preservation: Lower risk compared to equity investments
Portfolio Diversification: Reduces overall portfolio risk
Tax Benefits: Certain bonds offer tax exemptions
Liquidity: Many bonds can be traded in secondary markets
Inflation Protection: Some bonds offer inflation-indexed returns
- How to Invest in Bonds
Primary Market: Purchase bonds directly during issuance through banks, brokers, or online platforms.
- Secondary Market: Buy and sell existing bonds through stock exchanges (NSE, BSE).
- Bond Mutual Funds: Invest in diversified bond portfolios managed by professionals.
- Bond ETFs: Exchange-traded funds that track bond indices.
- Minimum Investment: Typically ₹1,000 to ₹10,000 depending on the bond type
- Bond Comparison
| Bond Type | Risk Level | Typical | Returns Tax | Treatment | Liquidity |
|---|---|---|---|---|---|
| Government | Bonds | Very Low | 6-8% annually | Taxable | High |
| Corporate | Bonds | Low to Medium | 7-12% annually | Taxable | Medium |
| Tax-Free | Bonds | Low | 5-6% annually | Tax-Free | Medium |
| Infrastructure | Bonds | Medium | 8-10% annually | Tax Benefits | Low to Medium |
| Sovereign Gold | Bonds | Medium | 2.5% + Gold Price | Tax Benefits | Medium |
- Investment Considerations
- Interest Rate Risk: Bond prices move inversely to interest rates. When rates rise, bond prices fall.
- Credit Risk: Risk of issuer defaulting on payments. Government bonds have minimal credit risk.
- Inflation Risk: Fixed returns may lose purchasing power during high inflation.
- Liquidity Risk: Some bonds may be difficult to sell before maturity.
- Important: Past performance doesn’t guarantee future results. Consider your risk tolerance and investment horizon before investing.
- Tax Implications
- Interest Income: Taxed as per your income tax slab rate.
- Capital Gains: Short-term (less than 3 years) taxed as per slab rate. Long-term taxed at 20% with indexation benefits.
- Tax-Free Bonds: Interest income is completely exempt from tax.
- TDS: 10% TDS applicable on interest income above ₹5,000 annually.
- Pro Tip: Consider tax-free bonds if you’re in higher tax brackets (20% or 30%)
Ready to Start Your Bond Investment Journey?
Bonds offer a stable foundation for your investment portfolio. Start with government securities for safety, then explore corporate bonds for higher returns.