All you need to Know about Buying Bonds

Different types of bonds in India offer investors an opportunity to earn high ROI in long and short-term periods. The types of bonds include:

Government Bonds India
As mentioned, these bonds are issued by central and state governments. The Reserve Bank of India regulates government bonds in India, and government bonds are considered less risky as the country’s administrative bodies issue them. The subcategories of government bonds comprise bills, notes, and bonds.

How do government bonds work?
When you buy government bonds, you lend the government an agreed amount for a particular period. In return, the government will give you a set level of interest at a regular period, known as a coupon. Once the bond expires, your original investment amount (principal) will be returned to you. The day you receive the principal amount is called the maturity date.

Government bonds interest rates.
These bonds have a fixed rate bond issued by the government of India. Government bonds have a maturity period of 7 years and offer a fixed interest rate of 7.75% every year.

Corporate Bonds In India
Private companies issue corporate bonds, which is an excellent way to raise money. The companies get short-term public funding from the public at low-interest rates by offering them significant benefits for their investment.

How do corporate bonds work?
Companies issue corporate bonds to borrow money from investors for a particular period, and they give investors a specific interest rate throughout the tenure. Such types of bonds are invested more in the value of faith than anything else. In addition, the quality of the bond is accessed by rating agencies that evaluate the likelihood of a company defaulting on a bond – known as credit risk.

Corporate bonds interest rates
Corporate bonds tend to offer a higher yield than government bonds. However, their prices and yields are susceptible to interest rate, credit, and inflation risks.

Treasury Bills In India
These bonds are short-term debt securities issued by the government of India with a maturity period of less than one year. Unlike other bonds, treasury bills are considered very low-risk and guarantee to offer high returns than a savings account.

How do treasury bonds work?
Investors can buy treasury bonds through banks, brokers, or dealers via a competitive or non-competitive bid. As these bonds are considered to have low credit, they offer lower yields related to other bonds like corporate bonds.

Treasury bills interest rate
The treasury bills interest rate ranges between 6.48% and 7.31%. Investors can get a good return on their investment in the long term.

Sovereign Gold Bonds
These are government securities where entities can invest in digitised forms of gold for a certain period. These bonds are issued by the Reserve Bank of India on the government’s behalf every 2-3 months and have a fixed tenure of 8 years with an exit option after five years.

How do sovereign bonds work?
A sovereign bond is a great option for investors who want to invest in gold but don’t want to keep it in its physical form. Sovereign bond promises to pay the investors periodic interest rates and repay the face value on the day of maturity. If investors want to redeem their investment, they can do it after five years.

Interest in sovereign gold bonds
Interest generated through these bonds is tax-free. Sovereign gold bonds offer an annual interest rate of 2.5% on the initial investment. In addition, they also provide capital gain tax exemption till maturity.