Bonds

Bonds are contract entered into by an authorized issuer with the holders who owes the holders a debt and an obligation to pay the amount back over a stipulated period of time along with the underlying fixed interest liability. It is basically a debt security. Bonds provide the borrower with funds to finance a company’s investment plans.

Types of Bonds
  • Corporate Bonds- These are the bonds issued by the corporations mainly to raise capital. The bond holders get a specific return every year. Corporate bonds mainly consist of-
    • Convertible Bonds- These bonds can be converted into shares after a stipulated time. The price of convertible bonds to an extent depends on price of equity shares. The price increases if the price of equity share rises.
    • Non- Convertible Bonds- These are the bonds that can’t be converted into shares. These are just simple bonds having a fixed return. Non-Convertible bonds are suitable for low risk appetite investors.
  • Government Bonds-The government bonds are issued by the Government mainly for financing purposes. The bonds are also known as G-Sec. Government bonds give a return of 7-10%. The bonds can be ranging from a year to a long term time period.
  • Zero Coupon Bonds- Usually bonds come with a fixed interest rate. However, zero coupon bonds don’t have a fixed interest rate. They are issued at a discount and redeemed at par. The investors get profit from the difference amount.
  • Tax-Saving Bonds-These are bonds issued particularly for tax saving purposes. They are issued as per section 10 of the Income Tax Act, 1961. They have a maturity of ten years or more. The money collected from these bonds are invested in infrastructure and housing projects. Investments in tax saving bonds can be done by Individual, HUF, partnership firms, LLPs, companies, trusts. This comprise of 54 EC bonds which are safe and have a AAA rating.
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