Bonds are debt instruments in which an investor lends money to either corporate or government which borrows the funds for a set period of time at a fixed or variable rate of interest. These are a type of fixed-income investments that focus on safety and liquidity. As money experts suggest that it’s not wise to put all eggs in one basket, i.e. equity, these bonds also help in diversifying an investor’s portfolio. When the stock market is volatile, most of the investors start switching their funds from the equities to the debt market.
There are mainly two types of bonds- Government bonds and Corporate bonds. Now, the big question here is: Which is better for investors in the long term? Experts say both have their own set of advantages and disadvantages.
Government bonds are among the safest investments in India
Government bonds provide investors with a comparatively secure and reliable investment alternative. Because they are guaranteed by the Indian government, these bonds are among the safest investments in India.
Exciting news! Mint is now on WhatsApp Channels. Subscribe today by clicking the link and stay updated with the latest financial insights! Click here
Some of Government bonds
According to Abhijit Roy, CEO, of GoldenPi, in the Indian bond market, government bonds are crucial pieces of equipment that the government uses to raise money.
“They are almost entirely risk-free, which attracts risk-averse investors including banks, financial institutions, and private individuals and often have interest rates that are fixed or variable and range from 5% to 6% for 10-year bonds and usually generate yields of around 7%. G-Sec yields have an impact on interest rates throughout the economy, affecting everything from corporate bonds to bank lending rates,” said Abhijit Roy.
Corporate bonds offer better returns
Corporate bonds are debt instruments that businesses issue to raise money. Investors can expect a set and predictable interest income from corporate bonds. The interest rate, also called the coupon rate, is set at the time of issuance and stays the same for the bond’s duration.
“Investors have the possibility for bigger returns because corporate bonds often have higher yields than government bonds or bank deposits. The yields on corporate bonds can range from 8% to 12% or more depending on the issuer, the bond’s credit rating, the duration, and market circumstances, among other variables,” said Abhijit Roy.
What should investors choose? Corporate or Government bonds?
Depending on their financial objectives and risk tolerance, investors can pick between corporate bonds, which may offer larger yields but more risk, and government bonds, which provide safety and high liquidity. Risk and return in a bond portfolio can be balanced via diversification between the two, suggested Roy.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
“Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!” Click here!
Download The Mint News App to get Daily Market Updates.
Updated: 27 Oct 2023, 01:14 PM IST