What are bonds and how to invest in them?

 

Introduction 

Bond investments are globally one of the most popular means to provide financial security for a family.  

As of 2020, the global bond market’s outstanding value was $123.5 trillion. 

Bonds have been around for over a century and have proven to be a safe and stable way of investing money over a defined period.  

As an investment option, bonds are helpful for both the economy and investors.  

By providing finance to the government for its expenses, it helps grow a country’s economy.  

For investors, it means protection from inflation and fluctuations in the stock market. Moreover, investors have lower risks when purchasing a bond than other investments.  

Earlier, only the institutional investors participated in the bond market. 

However, with the advent of online platforms and various initiatives by the government, retail participation has increased. 

What are bonds? 

A bond is a type of loan that investors give to a government, municipality, corporation or other entity. The bondholder is lending money to the issuer and is promised interest payments and the eventual repayment of the principal amount (also known as the par value) at maturity.  

There are numerous types of bonds in India, such as government bonds, municipal bonds, corporate bonds, zero-coupon bonds, tax free bonds etc. 

The government securities/bonds account for the majority of bonds available in India. 

 

Benefits of investing in bonds 

Investing in bonds has many advantages; some of them are:

• Bonds are often considered 

safe instruments as they offer a fixed return to the investors regularly. This helps the investors to protect their investment portfolio from market volatility.

• Bonds are the best option for the diversification of the portfolio. Since they provide a fixed return and are negatively correlated with other instruments, they are best for diversification. 
• Further, 

bonds provide fixed returns at regular intervals, so investors know what they are getting, unlike stocks, which are unpredictable. 

 

How to purchase bonds in India?  

An investor can invest in all types of bonds in India.

Like stocks, bonds also have two markets - primary and secondary.

If bonds are issued for the first time, investors can buy them in the primary market or buy from the secondary bond market (from exchanges where they are traded) once they get listed.

 

The most commonly used method to buy bonds is through brokers. Investors allow the brokers to trade on behalf of them.

Other than this, investors can purchase bonds through an exchange directly. 

Investors can also invest in government bonds through RBI’s Retail Direct or the NSE app “NSE goBID” or the BSE app “BSE Direct”.  

 

If investors do not have the time and required knowledge, they can buy bonds through debt mutual funds.  

One way that is gaining immense popularity is online platforms, i.e., buy bonds online. 

Through online platforms, investors can easily trade in bonds anywhere, anytime, without calling the broker.  

Various online platforms are available; select the one that provides you with the best service. 

One of the trusted online bonds platforms is BondsIndia. It provides easy access to top bonds to invest in India, extensive research and has a seamless process.

If you want to invest in bonds online, click here. 

 

Conclusion 

Investing in bonds can be an exciting experience. If investors are looking for a steady income stream, want to use the maturity proceeds to fund a major purchase, or if their goal is to add some stability to their portfolio, then they may consider investing in bonds.

There are both risks and rewards when investing in bonds.

When it comes to investment, bonds may sound like a safer option than stocks. However, bonds are still financial instruments, and they involve risk.  

 

Various risks are involved with investing in bonds, including inflation risk, credit risk and interest-rate risk. The value of the investment in bonds can go up or down.  

Thus, investing in bonds will depend on the individual investor’s financial goals and risk tolerance.  

To make an informed decision, first, investors are advised to figure out how much they can invest and how much risk they are willing to take on.