This topic is related to investment. Here you will get to know about bond investment and how to invest
- What is bond
Bond is a type of investment which comes under debt financing. It comes under debt Financing because many corporate companies take loan from the public in exchange of bonds. As the loan is also known as debt.
- How it actually works :
Company is in need of money. Company will sell their bonds to public for fixed period at fixed interest. Means company will borrow money from public at 9% per annum for 7 years in exchange of bonds Public side. Here public will get bond certificate of particular company. And also receive 9 % interest on invested amount every year till 7 years get completed. After 7 years the public will get their invested money return.
From company side. Company will get money in form of loan from public at less intrest rate then bank loan. As after fixed period company will return their money.
- As per above :
Bonds have three term
1. Coupon rate :
Means the interest rate.
2. Principle amount :
The amount which is paid when we buy the bonds.
It means the period where you will have your bonds.
Buying a bond means there is no physical existence at current period. Nowadays you will get your bond in Demat form. Investing in the bond is secured investment as it is secured investment here u will receive less return. As we know well calculation
High risk – high returns so in bonds u will receive less return compare to other investment.
In bonds short term investment is for 7 to 10 yeara. And long term investment is for 10-20 years.
Bonds provide an stable income.
Bonds provide diversification.
It offer an safety.
It also provide an legal protection.
Bonds have a clear rating such as AAA. AA etc.
Bonds fixed return as it is advantage but in some it shows a disadvantage.
Required a larger investment.
Less liquidity comparing stocks.
There is interest rate risk.
Types of bond:
1. Cumulative bonds:
Cumulative bonds are those bonds where intrest is paid after maturity witn invested money.
2. Non cumulative bonds:
These bonds are those bonds where intrest is paid annually till the maturity expires.
3. Redeemable bonds:
In these bonds maturity period is mentioned.
4. Irredeemable bonds :
Here the maturity period is not mentioned. (but this bond is not allowed in india)
5. Registered bonds:
These bonds are alredy registered in the name of particular person. As take care that while buying the name should change.
6. Bearer bond :
This bonds are fresh bonds as they are not registrated on any name.
7. Fixed intrest :
In this bonds intrest rate is fixed or mentioned.
8. Floating intrest:
In this bond the interest is not fixed. As it fluctuate according to the SBIMCLR intrest rate.
9. Callable bonds :
These bonds are buyback by company after maturity. (clearly defined in bonds)
10. Puttable bonds:
In these bonds investor can mentioned that they will sell the bonds at their suitable intrest rate.
Practically investment in bonds:
1. Indirect way:
Here you can invest in bonds through mutual funds as in debt mutual funds. One of the advantage is it saves your time of research and also it is convenient. But here you get charge annually the MGMT fees 1-2%.
2. Direct way :
You can also invest direct in corporate bonds. As intrest rates of corporate bonds depends upon their credit risk. Returns in corporate bonds 5-7% depending upon their credit ratings and lock in period.
HDFC corporate bonds.
SBI corporate bonds.
Kotak corporate bonds.
ICICI corporate bonds.
But should not invest in corporate bonds as their is more risk of balance sheet of the companies.
Government bonds :
It is buyed most of by commercial banks, financial institutions, primary dealer. As you can’t buy directly as a retailer through demat a/c. Investing in government bond as the advantage of sovereign guarantee, better returns and no tds. Returns can be 7-8% as it can give 14% return but depending upon over a time of horizon.
Such as: 75% taxable saving bonds is one of the new saving bonds
Tax saving bonds:
These bonds are tax saving bonds. As these bonds are tax saving here you doesn’t require to pay any tax.The lock in period for tax saving is 10-20 yr. And here u will get return up to 5.50-6.50%
Such as: NHAI, . National Highway Authority of india REC , PFC , NTPC.
Indian Railways, and Rural Electrification Corporation. Housing and Urban Development Corporation, Indian Renewable Energy Development. Agency
- Rural Electrification Limited.
- Power Finance Corporation.
While buying you should have your own demat and trading a/c .You can’t buy bonds directly online. As you can buy visiting official website, branch or through commercial bank Some of bonds details. As there are two types of corporate bonds.
1. High rates bonds – PSU & bonds.
2. Low bonds- AA- & below.
L&T Triple Ace bond fund :
The main aim of this bond is to generate regular return by investing predominantly in AA & as above.
Fund class- Open ended scheme.
Benchmark – CRISIL Composite bond fund index.
Expenses ratio for Regular plan – 0.62%. Direct plan- 0.32%.
To start Minimum amount – rs 10000. Minimum additional amount – rs1000. Minimum redemption amount – rs 500 or 50 units. Return for year is 14 %. Export and Import bank. 2027 – 7.56% . NTPC 2029 – 8.3%. National highway Authority 2029 – 8.27%. Power grid corporation – 8.24%. LIC housing finance – 8.7%. Food Corporation of India 2029 – 8.95%. IFFC 2029 – 8.3%.
Kotak corporate bond:
The main aim of this bond is to generate income by investing debt or many market invest predominantly in AA & as above.
Fund class- Open ended scheme.Benchmark – CRISIL Composite bond fund TRf. Aum- 2333cr. Riskometer- Moderate low. Expenses ratio for Regular plan – 0.59%. Direct plan- 0.33%. To start Minimum amount – rs 5000. Minimum additional amount – rs1000. Minimum redemption amount – rs 100 or 100 units. Return for year is 9.32%. Power finance Corporation – 9.51%. Small Industries Development – 8.40%. NA bond – 7.96%. LIC Housing finance – 7.90%. HDB financial Service – 7.05%. Rural electrification corporation – 6.99%. Reliance industries – 6.85%. Reliance Jio information – 5.42%. HDFC Ltd – 5.01%. L&T finance – 3.57%.
SBI corporate bond :
The main aim of this bond is to generate income by investing in corporate bond and other debt securities, predominantly in AA & as above.
Fund class- Open ended scheme.Benchmark – Nifty corporate bond.
Aum- 4673 cr. Riskometer- Moderate. Expenses ratio for Regular plan – 0.7%. Direct plan – 0.28%. To start Minimum amount – rs 5000 Minimum additional amount – rs1000. Minimum redemption amount – rs 500 or 50 units. Return for year is around may be 14%.
Portfolio: Government of India – 8.9%. Housing and urban development – 8.02%. National bank – 8.72%. NTPC – 6.61%. Power finance Corporation – 5.71%. REC. Ltd – 5.12%. Larsen and toubro. Ltd – 4.98%. SBI – 4.57%.
- Intrest rate risk :
Higher intrest rate the bond prices decreses. Lower the intrest rate higher the bond prices. As there is inverse relationship between bondprice and intrest rate.
- Credit risk :
Credit risk means the credit rating of the companies. If the credit rating is good then you can sell you bonds at premium but if the credit ratings is bad then you have to sell the bonds at discount. Prices of bonds can fluctuate on the basis of inflation, economic growth, global liquidity. Higher the maturity higher the intrest rate risk.
Note : (Manage your risk by investing in floating rate bonds or in dynamic debt funds.)
The return in bonds may get comparatively lower then other investment as it is secured investment. Secured company – low risk -company promises low intrest rate. Unsecured company- high risk – company promises to give high returns. The return can be get in two form Cumulative and non cumulative.
As returns in numerical way :
Here u can’t earn more than 10% intrest as u can earn but there may be in unsecured or risky investment.
Simple logical strategy :
Rising in intrest rate the invest in short term. Falling intrest rate then invest in long term.
If you really want to do safe investment the the bond investment is perfect for you as here you will get the fixed intrest but make you investment wisely according to the given terms.