Bonds or Securities or Debentures are like shares or stocks issued by different companies or Government authorities. These bonds or securities are much safer than stocks, though they yield lesser return. When these shares are issued by corporate houses or any business company they are called bonds and when these are issued by any Government authority they are called securities or government securities. Owing to the higher interest rate of 16%-17% in business loans government or the companies collect their capital to either run their business or expand the business by issuing securities or bonds or non-convertible debenture with a guarantee to repay the amount of the invested money when the security or bond is matured. When these bonds are issued by private companies they are known as corporate bonds. In this
What is Government Securities
Generally, government securities are considered as low risk as
Treasury notes (T-notes) are intermediate-term bonds that mature within two, three, five or 10 years. They provide semi-annual interest payments at
Treasury bonds (T-Bonds) are long-term bonds maturing between 10 and 30 years. T-Bonds provide semi-annual interest payments.
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Why Government issues Bonds or securities
Government securities or bonds invest in savings bonds issued or guaranteed by
If Govt. or any
Who can invest
Any citizen of India is eligible to invest in securities or bonds.
How they work
Corporate Bonds or securities work on the same principle as the stocks work. There is a debt market for debt securities and bonds like
Here are 5 points to consider when buying Corporate Bonds
You need to consider the risk of default in payment by the bond issuing authority. The default could be in the form of untimely payment of coupons/interest rate or non-payment of the principal at the time of maturity. The chances of a default can be assessed with the rating a bond or security gains from various agencies. The higher rating indicates that the bond or security authority is able to pay the money invested by lowering the chances of default.
You need to check out the rating of the bond marked by rating agencies like CRISIL, CARE etc. If the bond has AAA rating then it is considered the safest bet. But Ratings do not account for all the risks associated with bonds. New risks can arise after you have purchased the bond. For example, if an issuer decides to go for acquisition or any other restructuring, the debt burden on the issuer will increase. This will affect the issuer’s ability to service the existing bond liability. This will increase the risk profile of the bond that you are holding leading to reduce the price of the bond.
Expenses & Exit Load
You need to check out your investment horizon before investing in corporate bonds. You should invest in such bonds or securities which can meet your investment horizon. In accordance with your time horizon, you should also see the bond’s maturity period.
Fund manager Risk
There is a misconception among the investors that fund managers have no role to play in bonds, especially in corporate bonds as of equity mutual fund. But fund manager is equally important as the rating of a bond. If the fund manager invests the money of the retail investors in
If you invest in bonds for less than 3 years then you need to pay short term capital gains tax on interest incurred. But if you stay invested for more than 3
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Finally, an investor should stick to such corporate bonds which are highly rated and possess strong fundamentals. New investors are advised to make
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