Looking to Invest in Bonds? Know what are government and corporate bonds

A bond is a debt instrument in which an investor lends money to an entity (typically a corporate or government) that borrows the money at a variable or fixed interest rate for a specified period of time.

According to BSE, capital market consists of equity market and debt market. The debt market is the market for issuing, trading and settling various types of debt instruments.

Debt instruments called fixed income securities are issued by a wide range of organizations such as central and state governments, statutory corporations or bodies, banks, financial institutions and corporate bodies.

The bond issuer promises returns at the end of the bond term with interest payments at regular intervals.

Many people are keen to invest, but the risks and volatility that come with stock markets hold them back. For people with a conservative investment approach who consider risk, there is an option to invest in bonds in India.

Businesses and governments issue bonds to meet their long-term needs and to bridge their current spending shortfalls.

People invest in bonds because they are considered safer than stocks and other securities in the markets.

Types of Bonds: Listed below are the different subcategories of bonds.

1) Government Bonds: These bonds are issued by central and state governments as well as local governments (such as municipalities).

2) Corporate Bond: Corporates issue these bonds to meet their capital requirements. These bonds also have sub-categories.

3) Tax Saving BondsMotilal Oswal defines tax saving bonds or tax free bonds as bonds issued by the government to provide tax savings to individuals. Along with the interest, the holder will also get tax benefits. These bonds are good for senior citizens and individuals who want to save on tax in the long run.

4) Bank and Financial Institution Bonds: These bonds are issued by various banks or financial institutions. Many of the bonds available in this segment belong to this sector.

5) Infrastructure Bonds: Introduced by many banks to develop and enhance the infrastructure of the nation.

7) Sovereign Gold Bond: SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors will have to pay the issue price in cash and the bonds will be redeemed for cash on maturity.

Difference Between Shares and Bonds

Bonds put the lender in the position of a creditor to the bond issuer and a stock puts the investor in the position of a shareholder.

Investors should note that they are advised to check with their financial advisor before investing in the Bonds or any other financial instruments.

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