BONDS

Bonds: The government borrows from public if form bonds. The loan is generally indicated as “2013 GOL bond 8.78% indicating that the loan is a government of India with return at 8.78% with semi annual payment also called as coupon rate, the bond is repayable in 2013. There is a market for these bonds and they are traded like shares at a market based price. The return on invested price is popular known as YTM (Yield Till Maturity). The common investor is away from this market because of the market lot size of Rs 5 crore. One as to know about this as many Mutual Funds or ULIPS when they offer plans it is mix of bond market and equity market.

Types of Bonds

Bonds can be classified mainly in two ways:

  • Corporate bonds
  • Government bonds

    • Corporate bonds:

    Corporate bonds are issued by corporations to raise funds. They are safer than equities. The bondholders get a specified return every period. These bonds can be of two types:

  • Convertible bonds: They can be converted into a pre-defined number of stocks as and when required by the investor.
  • Non-Convertible bonds: They are just plain bonds. In both bond types, the payment schedule and amount is similar.

    • Government bonds

    Government bonds are issued by Government to sponsor their activities. The Government bond market size is much larger than the corporate bond market size. They are also known as G-Sec. The bonds return depends on the current interest rate. Usually, Government bonds pay a return of 7% to 10%. The maturity can be anywhere between 3 months to 30 years.Central and State Governments both can issue bonds. These are safest of investments as Government doesn't fail to pay. The return is less in comparison to corporate bonds.