Knowledge Centre
Retail Knowledge Centre
1. What are Corporate Bonds?
Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business.The backing for the bond is generally the ability of the company to repay, which depends on its prospects for future revenues and profitability.
2. What are the Types of Bonds?
PSU Bonds,Private Bonds, Govt Guaranteed Bonds, Tax-free Bonds
3. Why Invest in Bonds?
Bonds and fixed deposits are the most popular choices among investors with low-risk tolerance levels. Also, both of these fixed-income offer fixed interest income to investors. However, they are different from each other on various parameters.
4. Who Should Invest in Bonds?
Bonds are suitable for investors who have low-risk tolerance levels. Bonds are safer investments as they carry less risk as there is an assurance of principal and interest payment after a specified duration. Also, for these securities collateral backs them, which ensures investors will receive their payment on maturity. Thus, bonds can act as a long-term investment option for investors
5. Why do companies issue Bonds?
Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. When one buys a corporate bond, one lends money to the “issuer,” the company that issued the bond. Bonds have several advantages over bank loans and can be structured in many ways with different maturities.
6. Why Invest in Bonds?
Bonds are a type of secured investment that provide safe returns during the investment tenure.
When you invest in bonds, you’re generating a secondary source of income for yourself as well as a well-balanced investment portfolio.
The bond issuer guarantees to repay the sum borrowed at the end of the bond tenure, plus interest at regular intervals.
A private or public company, a bank, a non-banking financial company, or the government can issue a bond.
Bonds are low-risk investment options that offer good diversity.
Bonds add income and diversification to an investment portfolio while carrying a lower risk than equities
7. What are the advantages of Investing in Bonds?
Bonds make regular cash payments, an advantage not always offered by stocks. That payment provides a high certainty of income. Less volatile price. Bonds tend to be much less volatile than stocks and move in response to several factors such as interest rates
8. High Risk: Bonds or FD?
Investment in bonds and fixed deposits are safe. Both schemes have multiple options with different tenures, which can help investors with short-term and long-term investments. Investors can also choose a mix of both for their portfolio diversification based on their requirements.
9. Where do retail investors get their information?
Retail investors get their information from brokers and advisors as well as from their research. This could be from your website, your social media, the industry press, or anywhere else there is information about what your company does and what it plans to do in the future. Therefore, it is important to be open, engage, and communicate with retail investors in the places they frequent and in their language.
BONDS vs FIXED DEPOSITS
| Bond | Fixed Deposit (FD) | |
|---|---|---|
| Meaning | A bond is a debt instrument that represents a loan to the borrower by the investor. The investors get regular interest income in return, and the principal amount is payable on maturity. | A fixed deposit is a financial instrument where the investor deposits money for a specific period with a predetermined interest rate. The principal and interest are payable on maturity. |
| Issued By | Government, municipalities, states, or private companies. | Banks, post offices or NBFCs |
| Safety | Bonds are considered safe instruments as physical assets backing them. Also, it is essential to check the credit rating of the issuer. | FDs are also safe instruments but physical assets do not back them. It is important to select a safe institution where to open an FD. |
| Pay-out Frequency | Investors cannot select the pay-out frequency. They vary and are usually half-yearly, yearly or cumulative at the time of maturity. | Investors have an option to select the payout frequency |
| Returns | Bonds can offer higher returns than FD, especially post-tax | FD guarantees a fixed return to its investors. |
| Liquidation | If the company goes bankrupt and gets liquidated, the bondholders will be the first to receive their payments. | FDs are not backed by assets; however, they are insured up to Rs.500,000 by DICGC for investors’ principal and interest amounts. |
| Taxation | The capital gains from bonds are taxed per their holding period. On the other hand, there is no tax on interest income with tax-free bonds issued by government institutions like PFC, REC, NTPC, IREDA, HUDCO, IRFC, and NHAI. | Fixed deposits are subject to income tax per the individual income tax slab rate. Also, TDS is deducted at 10% if the interest income exceeds Rs.40,000 and Rs.50,000 in the case of senior citizens. |