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Bonds are an ideal investment avenue for investors with the objective of capital protection and periodic income. Bonds include treasury bills, government securities, and corporate bonds. In India, the bond market is not as developed as the equity market. How to purchase and sell bonds varies based on the issuer and investor type.
Institutional investors such as mutual fund houses, insurance companies, and trusts are big players in bond securities. In contrast, the market share of retail investors, NRIs, and HNIs investing in bonds are relatively small.
Reserve Bank of India, State and Central Governments, Municipal Boards, and Local Authorities issue government bonds and treasury bills. How to buy and sell bonds differs for retail and institutional investors.
You can purchase corporate bonds or deposits through a broker, banker, or bond trader in the primary market. You may also buy some bonds over the counter. The intermediary provides face value, coupon rate, credit rating, tenor, allotment, and redemption dates for efficient decision-making.
An investor may not necessarily hold a bond for its entire tenure. He can sell it in the secondary market to another buyer.
Unlike the equity market, the trading volume of the secondary market for bonds is much lower. Thus, the liquidity in the bond markets is comparatively lesser. Most bond investors purchase securities intending to hold for the entire tenure.
For any investment avenue, the ideal strategy is a factor of your investment goal, risk appetite, and time frame. Bond investment strategies include a vanilla buy-and-hold approach or complex trades involving interest rates and inflation. Investment goals include capital protection, regular income, tax liabilities, and risk management.
High-net-worth individuals may prefer to buy bonds and lock in the capital for the entire bond tenure even with low yields. The objective for such investors is capital protection. For a retired investor, recurring revenue is essential and may choose to invest in bonds.
In India, the government issues tax-free bonds. The yield of these bonds is lower, but the income earned is exempted from tax. For investors in the maximum tax bracket, tax-free bonds are an exciting avenue for investment.
Similarly, investors with a lower risk appetite prefer government-backed securities. Corporate bonds and fixed deposits are relatively risky. The credit rating allocated for such corporate bonds is commensurate with the risk involved.
Finding a respected, trustworthy bond broker is essential for bond trading. Consider the following points to select the ideal broker –
Other factors include compliance with relevant regulations, international presence, and various services offered. In India, the market for bond brokers is untapped, with only a few significant players. IIFL is the best option to begin your bond-trading journey. All you need to do is visit the IIFL website or download the IIFL Markets app to get started.
In India, the average return from government bonds is 7% per annum in the long term. On the contrary, the average return from equity investments easily crosses 15% over five years. Thus, equity is the more preferred investment alternative.
However, over the last decade, retail investors have been actively investing in bonds with the objective of portfolio diversification. Investors use Government securities and T-Bills for portfolio risk management.
Yes, you can invest ₹1,000 in bonds, especially in government schemes with low entry requirements. Learn more about how to buy bonds in India for detailed guidance.
Yes, bonds can be purchased directly through RBI’s Retail Direct platform or stock exchanges. Understand how to trade bonds in India for seamless transactions.
The interest rate on a 5-year bond depends on the issuer and market conditions. Research how to buy bonds in India to compare available options.
Invest wise with Expert advice
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