“We will only do with your money what we would do with our own.”
~Warren Buffet
What is Bond?
A bond is a fixed income instrument in which investor loans money to an entity (Corporate or Government) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by Corporate or Government to raise money and finance a variety of projects or activities. There are different kinds of bonds. Those bonds which are exempt from taxation on the interest income under the Income Tax Act, 1961 are called tax-free bonds. These are usually issued by government-backed entities.
Types of Bonds
These are issued by corporation to raise capital. 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: Non-Convertible bonds are plain bonds.
Government bonds are issued by Government to finance their activities. In India, the Government bond market size is much larger than the corporate bond market size. They are also known as G-Sec.
- RBI Savings Bond
- Sovereign Gold Bond (SGB)
- Capital Gain Bond (54 EC)
Why Bond?
Tax advantage