scorecardresearch
What are bonds, how to invest in various bonds? Check details

What are bonds, how to invest in various bonds? Check details

One can invest in Government Securities through the Retail Direct scheme. Under this, investors can register for a gilt securities account -- Retail Direct Gilt. Account holders can participate in the primary issuance of CG / SG / T-bill / SGB. Besides, one can also buy the bonds by using the website NSE (National Stock Exchange) or the NSE app.

When investors are looking to diversify their investment portfolio, bonds can be added for regular and stable income as the risks associated with it is low When investors are looking to diversify their investment portfolio, bonds can be added for regular and stable income as the risks associated with it is low

Bonds are debt instruments where investors lend their money to bond issuers who then invest it further. The bond issuer here promises handsome returns at the end of the bond tenure, along with attractive interests at regular intervals. Bonds lie under the category of low-risk investments and can be issued by any public or public company, a bank or non-banking financial company, or even the government (Centre or state). 
When investors are looking to diversify their investment portfolio, bonds can be added for regular and stable income as the risks associated with it is low compared to other investment tools. 

Types of bonds and risks

Government Securities Bonds
These bonds are issued by the central or the state governments, and they fall under the category of Government securities (G-Sec). These bonds are generally long-term investment plans ranging from 5 to 40 years.
These are floated mainly to attract small investors so that they can invest in small amounts and earn interest at low risks. They carry minimal risk and are called risk-free gilt-edged instruments. Most of government bonds are issued at a fixed interest.
Some of the common government-controlled bonds are Treasury Bills,  Cash Management Bills, Dated Government Securities, Fixed-Rate Bonds, Floating Rate Bonds, Zero Coupon Bonds, Capital Index Bonds, Inflation-Indexed Bonds, Bonds with Call or Put Option, Special Securities, STRIPS or Separate Trading of Registered Interest and Principal of Securities, Sovereign Gold Bonds, 7.75% GOI Savings Bond, and State Development Loans (SDLs).
Corporate bonds
Corporate bonds are issued by companies for a fixed period. In return, they give a specific interest rate throughout the tenure. Investors with a low appetite for risks prefer these bonds as they earn a fixed interest rate for the tenure of their investment.
Convertible bonds 
These bonds offer both the features of debt and equity funds but not together. They can be converted into a predetermined number of stocks and the bondholders can become shareholders of a company and claim benefits that are offered to shareholders.
Zero-Coupon:
These funds do not give any interest. These bonds do not offer a regular interest rate until the bond reaches maturity period. Investors get annual returns on the principal amount, which they get only when the bond matures.
Inflation-Linked
These bonds can be chosen when inflation is high. These are mainly issued by the government. In Inflation-linked bonds, the principal and interest rates rise and fall with the rate of inflation as determined by the central bank. 

RBI Bonds:
The floating rate saving bonds in 2020 are issued by the RBI for a total period of 7 years. The interest rate is floating, which depends on the economic conditions, and is reset every six months, the first being on January 1, 2021. The interest rate is paid every six months, so investors don’t have to wait till the end of maturity.
Sovereign Gold Bonds:
Sovereign Gold Bonds, or SGBs, are issued by the Reserve Bank of India on behalf of the Indian government as an alternative to physical gold. These bonds are government securities expressed in terms of grams of gold and are issued a couple of times in a given financial year. The scheme was first floated in 2015 by the Indian government. The lock-in period for the scheme is 8 years.
How to invest in bonds?
There can be three ways to buy bonds. One can approach a financial broker, and buy bonds just like stocks. A financial broker can guide the investor on where to invest for maximum gains. 
One can also buy bonds through mutual funds or ETFs. When an investor buys a bond mutual fund or an exchange-traded fund (ETF), they don’t decide the type. The fund or ETF provider helps them in investing their money.
One can invest in Government Securities through the Retail Direct scheme. Under this system, you can register for a Gilt Securities Account with the RBI called Retail Direct Gilt (RDG). RDG account holders can participate in the primary issuance of CG / SG / T-bill / SGB. Besides, one can also buy the bonds by using the website NSE (National Stock Exchange) or the NSE app.