So what is a Bond?
A bond is a financial instrument in which money is lent by an investor to another party- such as a company or a government, over a set period of time and in exchange interest payments are made.
It is a debt note not ownership.The purpose of raising money by means of bonds is the financing of the projects, operations, or expansion of the entities. The purchaser takes the role of a creditor while the user (issuer) has the responsibility of paying the entire amount by the end of the bond term limit.
Important Bond Characteristics
Bonds Tenure: It is normal to 5-10 years, but it can be different.
Maturity: This is the extent (also referred to as the face value) which is reimbursed upon the maturity of the bond.
Interest: Routine interest is paid by investors known as the coupon payment, on a semi annual (or annual) basis.
Term: Short term bonds or bills Long-term bonds
Bond types in India
🏛 1. Government Bonds
The Government of India or the Public Sector Undertakings(PSUs).They are low risk because they are government guaranteed. Are usually less expensive by the fact that they are highly safe.
🏢 2. Corporate Bond
The private companies issue them Can be: Backed by company assets: secured (backed by company assets) Not secured (has no asset security) Example: UnsecuredIIFL Bonds (Sep 2012) Shriram City Union (Sep 2012) SecuredThey tend to provide greater returns than the ones with government bonds but are more risky.
🏦 3. Minor bank and financial institution bonds
Bank and NBFC issues.Constitute a huge portion of Indian bond market.Ratings are important, bonds with low ratings are to be avoided due to safety reasons.
💸 4. Tax-Saving Bonds
Government provided to promote investment.Provide both: Regular interest Taxation incentives of certain sections of Income Tax Act
🚰 5.Liquidity
A large proportion of Indian bonds are listed in NSE and BSE thus being easy to be bought or sold in the open market when the need arises.
