bonds in India are also one of the most popular investment alternatives. A bond is a type of debt on the part of the issuer company that basically borrows from the lender or investor in this case, and in return is obligated to pay an amount as interest on the principal amount to the lender. The lender or investor enters into a formally drafted contract with the borrower in which the borrower agrees to repay the borrowed amount along with the interest at fixed intervals like annual or monthly or even quarterly. The interest is known as a coupon.
While both bonds in India, as well as stocks, are capital market securities, the difference between them is that stockholders have an equity stake in the company and bondholders have a creditor stake. This literally means while stockholders enjoy the status of owners in a company, bondholders are simply lenders. However, when you buy bonds online or offline, it’s considered safe because of the low risk this investment opportunity presents.
To understand more about bonds in India, keep reading to learn more about the different types of bonds.
Types of Bonds in India:
Capital Gains Bonds
Capital Gains Bonds allow you to transfer your profits from long term assets like land and real estate into specific bonds. The advantage? The most important benefit of buying these bonds in India is that they offer you a tax exemption from Capital Gains tax for up to six months, from the sale of the asset.
Government Securities
Government Securities are bonds issued by the State or Central Governments. Since these bonds are issued by the Government, they hardly carry any risk. When you decide to buy bonds online or offline, you could always opt for Government Securities since it’s one of the safest investment options in the country that allows you to earn interest on a semi-annual basis and even the principal amount on maturity.
Corporate Bonds
Bonds issued by corporations for their own financing requirements are known as Corporate Bonds, and these bonds naturally carry credit risk. However, these bonds in India pay a higher rate of interest than bonds issued by the Government. Also, these allow you to earn interests at fixed intervals and even the principal amount on maturity.
Inflation-linked bonds
An efficient way to deal with inflation risk, Inflation-linked Bonds are a type of investment in which both the principal amount as well as interest payments are indexed to inflation.
Convertible Bonds
Convertible Bonds are exactly what the name suggests! Convertible Bonds allows the bondholders an alternative to convert the bond into equity based on pre-specified terms.
Sovereign Gold Bonds
Sovereign Gold Bonds are issued by the Central Government and hardly carry any risk. When you decide to buy bonds online, opting for SGBs is a great option because not only does it pay a fixed annual rate of interest but also capital appreciation due to the increase in the prices of gold.
