Are You Investing in Fixed Deposits? Why Not Invest in Bonds!
Bonds are commonly referred to as fixed-income securities
Bonds are commonly referred to as fixed-income securities and are one of the three main generic asset classes, along with stocks (Equities) and cash equivalents. Many corporate and government bonds are publicly traded on exchanges, while others are traded only over the counter (OTC),
What is a Bond?
Bonds are debt instruments issued by corporates or public sector entities, like municipalities, states, or central government entities. An investor can invest his money in bonds for a fixed tenure and at a fixed interest rate. You can either buy the bonds at the time c their issue or from the Secondary Market, where they are traded after the case.
Points to Consider in Bond Investing
▸ Credit Rating: Bonds are assigned ratings by rating agencies like CRISIL, ICRA, etc., based on their credibility. The ratings are AAA, AAA+, AAA-, AA, BB, BBB, etc., and each rating represents varying levels of safety regarding interest and principal payments. The better the rating, the lesser the risk.
▸ Tenure: The bond's tenure should align with your investment horizon. Though there is an option for secondary market trade, there is always an interest rate risk if you encash it before maturity.
Why Should You Invest in Bonds?
▸ Bonds bear fixed interest rates like FD, and the average rate of return of a bond is around 8-10%, while Fixed Deposits accept an interest rate of 5-6% on an average
▸ Bonds can be redeemed before maturity as they are traded in the secondary market
▸ You can do a bond transaction online through your Demat account
▸ No TDS on interest payouts
▸ In the case of long-term capital gains, the investor gets the benefit of indexation
▸ A bond transaction is quick. Payment is via RTGS, and the bond will be credited to your Demat A/C by the end of the day.
Comparison between FD and bonds