Frequently Asked Questions
What are bonds and how do they work?
A bond is a loan you give to a government or company. In return, the issuer pays you interest (called the coupon) at fixed intervals, such as monthly, quarterly or yearly, and repays your principal on the maturity date. Because the payout schedule is set at the start, bonds are called fixed income investments.
What types of bonds can I invest in?
Common options in India include corporate bonds and NCDs, government securities (G-Secs, Treasury Bills, State Development Loans), PSU bonds, tax-free bonds (available on the secondary market), 54EC capital gains bonds and municipal bonds. Each type differs in issuer, risk, return, tenure and tax treatment.
What are secured bonds and how are they different from unsecured bonds?
Secured bonds are backed by specific assets of the issuer, such as loan receivables or property. If the issuer defaults, bondholders have a claim on those assets. Unsecured bonds have no such backing and depend only on the issuer’s ability to pay. As a result, they usually offer higher interest to compensate for the added risk.
What are high yield bonds in India?
High yield bonds are issued by companies with lower credit ratings, typically A or below. To attract investors, they pay higher interest than highly rated bonds or bank fixed deposits. Many are issued by NBFCs and growing businesses. The extra return is compensation for the higher credit risk the investor takes on.
Are high yield corporate bonds a good investment?
They can suit investors who are comfortable taking more risk for higher income. Before investing, check the credit rating, the issuer’s financials, whether the bond is secured, and how easily it can be sold. Spreading money across several issuers and limiting high yield bonds to a portion of your portfolio helps manage default risk.
Who should invest in fixed income bonds?
Bonds suit investors who want predictable income and lower volatility than equity. This includes retirees seeking regular payouts, salaried individuals saving for goals with a fixed timeline, and equity investors looking to balance their portfolio. Property sellers can also use 54EC bonds to save tax on long-term capital gains.
How do I choose the best bonds to buy for my portfolio?
Start with your goal and time horizon, and pick a maturity that matches it. Then check the credit rating, yield to maturity (YTM), whether the bond is secured, interest payout frequency, liquidity and tax treatment. Avoid choosing on interest rate alone, and spread your investment across issuers to reduce risk.
What is the minimum investment required to buy bonds?
It depends on the bond’s face value and the type of issue. Many listed corporate bonds and NCDs are available from ₹10,000. Government securities can be bought by retail investors through the RBI Retail Direct platform. Some older or privately placed bonds still carry a face value of ₹1 lakh or more.