The advantages of investing in Bonds
A lot of people are excited about investing in stocks. However, the risks and the volatility that come to these market segments, not just in India but other countries, are the main reasons not to invest in these markets. If you prefer a more prudent way of approaching investing and are concerned about risk, investing in debt funds and bonds in India is possible.
They are a market instrument in which the lender provides money to the bond issuer. The bond issuer will pay back the amount borrowed after the term expires on the bond, and the interest will be due regularly. The bond issuer may be a public or private sector enterprise, like banks, non-banking financial institutions, and even a government.
An issuer’s interest payment for the lender is a coupon. The amount of cash you invest in bonds is the bond’s price.
Many investors decide to invest in Bonds because they provide a steady income stream. Investors wary of risks are particularly keen to invest their money in Bonds to shield themselves from the possibility of sudden losses in the market.
Benefits of investing in bonds
Higher Returns
Bonds are known to have higher yields than banks’ FDs. Some AAA-rated bonds offer returns of 8-12 percent annually.
Income that is stable and predictable
The benefits are regular income. Furthermore, you’ll earn regular returns when the bond is held to expiration. As a bondholder, you will receive regular interest payments due every month, each quarter, or every half-year, depending on the bond’s conditions.
High liquidity
Bonds are an excellent source of liquidity compared to FDs since they permit the buyer to buy or sell them quickly through the exchange.
Ratio of risk-to-reward
Bonds offer a higher return than fixed deposits with the same risk and are much more secure than equity, which has a similar return on investment.
Capital Protection
In the volatile market, capital protection is essential for those investing. Bonds provide security, protection against capital losses, and liquidity. Particularly, AAA-rated or PSU Bonds are believed to be more secure.
Portfolio diversification
Bonds can help diversify your portfolio while balancing the risk-reward that comes with different kinds of assets. They are also perfect for your investment portfolio.
Tax Benefit
Certain types of bonds could help you reduce your tax burden. Tax-saving bonds are tax-free according to Section 80CCF of the Income Tax Act. Tax-free bonds allow you to make tax-free earnings.
Interesting Related Article: “5 things a savvy business owner should know about surety bonds“