What Are Bonds

Bonds are fixed-income securities that represent a loan from an investor to a borrower, typically a company or government. When you buy a bond, you're essentially lending money in exchange for regular interest payments (called coupons) and the return of your principal amount on a specific maturity date. Types of Bonds 1. Government Bonds – Issued by the central or state government (e.g., RBI issues G-Secs). 2. Corporate Bonds – Issued by companies to fund operations or expansion. 3. Municipal Bonds – Issued by local bodies for infrastructure projects. 4. Tax-Free Bonds – Issued by government-backed entities; interest earned is tax-exempt. Key Bond Features Face Value: The original amount you invest (commonly ₹1,000). Coupon Rate: Annual interest rate paid to investors (e.g., 7%). Maturity Period: The date when the bond expires and the principal is repaid. Yield: Actual return based on the purchase price and coupon. Why Invest in Bonds Stable Returns: Predictable income from interest payments. Lower Risk: Especially in government bonds, where default risk is negligible. Diversification: Balances equity volatility in portfolios. Capital Protection: Safer than stocks if held to maturity. Risks in Bond Investing Interest Rate Risk: Bond prices fall when interest rates rise. Credit Risk: The issuer may default (mostly in corporate bonds). Liquidity Risk: Some bonds are hard to sell before maturity. How Are Bonds Traded Primary Market: Fresh issue of bonds by issuer. Secondary Market: Bonds traded on exchanges like NSE/BSE via platforms like RBI Retail Direct or brokers. Pro Tip Start with government securities or RBI Floating Rate Bonds for safety, then gradually explore AAA-rated corporate bonds for better returns. Conclusion Bonds are essential for building a balanced, low-risk investment portfolio. They offer steady income and protect your capital — ideal for conservative investors or those nearing retirement.