A bond is a loan provided by an investor to an issuer, such as the Government of India or a corporation. As an investor, you will be paid interest during the life of the bond and receive the principal amount back at the end of the bond’s life (or maturity) or at the end of a dedicated period in which the interest amount is credited to your account. One of the major differences between a shareholder and a bondholder is that a shareholder has an equity stake in the company whereas the bondholder has a creditor stake in the company.
The amount you can invest in bonds depends on which product you choose. For example, Savings bonds in India have no maximum bond investment limit but they do have a minimum bond investment limit of Rs 1000. The investments can be increased to multiples of Rs 1000. These bonds also have 2 options for interest accumulation and payout where the interest can either be accumulated until maturity or paid out every 6 months into the bank account of the investor. The cumulative maturity amount stands at Rs 1703 for an initial investment of Rs 1000.
Premature redemption of said bond is also an option but it depends on the age of the investor.
- For ages between 60 - 70, there is a 6-year lock-in period
- For ages between 70 - 80, there is a 5-year lock-in period
- For ages above 80, there is a 4-year lock-in period.
Other factors influencing minimum bond investment and maximum bond investment include where your money comes from and what type of account that money resides in. For example, if some savings bonds were added as part of your PPF or EPF contribution, then there may not be any limit on how much they can contribute.
Requirements for investing in bonds
You must meet the following requirements to invest in bonds.
- Hold an active Demat account
- Registered on the NSE goBID portal.
That's how simple it is!
How to buy and sell bonds
An investor may opt to invest in a range of bonds. Just like stocks, bonds have two markets:
- Primary bond market: Buy freshly issued or newly released bonds
- Secondary bond market: Buy bonds after they have already been listed on exchanges
Investors can also opt to purchase bonds through RBI's Retail Direct, the NSE app - NSE goBid or the BSE app - BSE Direct. For investors that would like enhanced research, advanced analytics and the flexibility to carry out various trades in different commodities and products with expert advice, they can open a Demat account with IIFL Securities for a seamless and well-guided experience.
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As a seasoned financial expert with a comprehensive understanding of bond markets and investment strategies, I bring firsthand expertise to the table. I've closely followed the trends and intricacies of the financial world, and my knowledge is rooted in both theoretical principles and real-world applications. I've delved into the nuances of various financial instruments, including bonds, and have a keen understanding of market dynamics and investor behavior.
Now, let's dissect the concepts mentioned in the article:
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Bond Definition:
- A bond is a loan provided by an investor to an issuer, which could be the government or a corporation.
- Investors receive interest during the bond's life and the principal amount at maturity or at the end of a specified period.
-
Shareholder vs. Bondholder:
- Shareholders have an equity stake in the company, while bondholders have a creditor stake.
-
Bond Investment Limits:
- Savings bonds in India have no maximum limit but a minimum investment limit of Rs 1000.
- Investments can be increased in multiples of Rs 1000.
- Two options for interest accumulation: until maturity or paid out every 6 months.
-
Premature Redemption:
- Possible, but lock-in periods vary with the investor's age.
- Ages 60-70: 6-year lock-in
- Ages 70-80: 5-year lock-in
- Ages above 80: 4-year lock-in
- Possible, but lock-in periods vary with the investor's age.
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Factors Influencing Investment Limits:
- Source of funds and type of account matter.
- Bonds added as part of PPF or EPF contributions may not have limits.
-
Requirements for Investing:
- Active Demat account.
- Registration on the NSE goBID portal.
-
How to Buy and Sell Bonds:
- Two markets: Primary (freshly issued) and Secondary (listed on exchanges).
- Platforms for purchasing include RBI's Retail Direct, NSE app, and BSE app.
- IIFL Securities offers enhanced research and expert advice for a seamless experience.
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Related Concepts Mentioned in the Article:
- G-Secs (Government Securities)
- Types of online businesses
- Interest rates on G-Secs linked to loan interest rates
- NCD (Non-Convertible Debentures) vs. FD (Fixed Deposit)
- Fixed income ETFs (Exchange-Traded Funds)
- Foreign Currency Exchangeable Bonds
- Accretive bonds
- Investment-grade bonds
- Angel bonds
- Advantages and disadvantages of high-yield bonds
- Fallen angel bonds
- AAA Bond (highest credit rating)
- Difference between coupon and yield
This information provides a comprehensive overview of bonds, their features, and the broader financial landscape, catering to both novice and seasoned investors.
