Business strategy

What Are Bonds? All You Need To Know

A common saying in the market is that Bonds are less risky as compared to market-linked instruments like equities. Experienced investors agree with the phrase. We understand you might have a lot of questions, and we are here to address each of them.

As per Forbes Advisors, Bonds are a kind of loan you offer to its issuer upon which you get interest. When the bond reaches maturity, the issuer returns the money, principal amount, and interest. But why do people invest in bonds? Because the bond issuer uses the money raised from them for activities like funding expansion projects, refinancing existing debt, undertaking welfare activities, etc.

Moreover, investors can make wise decisions by opting for safety bonds by their rating. The highest rating is AAA, which indicates the safest. These ratings are based on the bond issuer’s financial strength, and his or her ability to pay principal and interest on time.

There are different types of bonds present in the market-

Government securities bonds: These bonds are issued by the central or state governments. They can be both short (for less than a year) and long-term (more than one year).

Corporate bonds: These are issued by companies to investors. When the company wants to fund expansion or projects, it can raise funds from the public by issuing bonds for a fixed tenure. After the maturity, investors will receive the bond’ face value along with interest.

Sovereign Gold bonds: It is a unique way to hold gold without having it in physical form. You can invest in sovereign gold bonds with a tenure of eight years. They offer an interest rate of 2.5 % and are issued by RBI.

What are the advantages of Bonds?

They bring assured returns that help diversify a portfolio and provide a higher return than fixed deposits. To buy a bond, an investor can do so either through bond ETFs, bond platforms, or gilt mutual funds.

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