BONDS

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Bonds

Bond refers to a security issued by a company, financial institution or government that offers regular and fixed payment of interest in return for borrowed money for a certain period of time.

Companies need money for expansion and the government needs funds for social programs and infrastructure. In many cases, the money required is more than that can be funded by the banks as a loan. Hence, these entities issue bonds to the public in open markets. A number of investors thus helps raise the money by lending a portion of the funds that are needed. In simpler terms, bonds are similar to loans for which the investor is a lender. The company or the entity that sells the bonds is known as the issuer. Bonds can be treated as IOUs that are given by the issuer to the lender, who in this case is the investor.

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Bonds are known for their security and safety and many investors make sure to have bonds in their portfolio. The interest on the bonds is paid at a fixed rate as per a predetermined schedule. Bonds are less risky when compared to stocks, but they also come with low returns.

Different Types Of Bonds


Government bonds: These are the bonds that are issued by the government directly. These are secured as they are backed by the Government of India. These bonds generally offer lower rates of interest.

Corporate bonds: Corporate bonds are issued by private companies. These companies issue both secured and non-secured bonds.

Tax saving bonds: The tax saving bonds or tax-free bonds are issued in India by the government itself to provide tax savings to individuals. Along with the interest, the holder would also receive a tax benefit. Capital Gains Bonds or 54EC Bonds come in this category.

Bank and Financial institution bonds: These bonds are issued by various banks or financial institutions. A number of bonds that are available are generally from this sector.