What Are Bonds, And Why Do People Buy Them?

Know What Are Bonds?

Bonds in the Fixed income securities are the preferred option for people interested in earning a stable income. Read information related to what are bonds to expand your understanding about it. It provides many benefits to issuer and bondholders. It is actually a debt security that guarantees interest at predefined intervals and return of face value also called the principal at maturity.

Why Do People Buy Bonds?

People buy bonds because of many reasons. After you understand what bonds are, you will find it one of the best choices secure in the volatile market. It is known for its attractive features and advantages. In comparison to other debt instruments, bonds offer more advantages to people investing in distinct types of bonds in India. 

You can enjoy the following advantages:

Good returns

In comparison to other options, bonds offer good returns on your invested amount. The interest that you get is also known as the coupon payment.

Minimal risks

The level of risk in bonds is comparatively low. The choice of bonds with AAA rating can help you minimize the risks. Government bonds can help you further lessen your risks of capital loss.

Liquidity

Avail the feature of buy and sell in the secondary market. You can turn your bonds in cash whenever you are in need of funds.

Types Of Bonds          

Bonds are categorized into many types. If we talk about the types of bonds, it is majorly classified into four types. The key types of bonds include Government Bonds, Corporate Bonds, Municipal Bonds, and Agency Bonds.

Before classifying bonds, several factors are considered. Although it is relatively safe there exists risk in it, so it is necessary to make investment after you are confident about your decisions.

What is bond yield and why is it important? 

Know why bond yield is important because it can help you in a number of ways. A bond yield in fixed income securities bond is the predictable return from the bond’s interest to a bondholder. The bond yield can be easily calculated. It can be calculated as a simple coupon yield. You can alternatively do the calculation of bond yield using other methods namely yield to maturity (YTM).

Bond market   

If you are new to the segment, it is better to learn about the Bond market in brief. The bond market here refers to a market where bonds are bought and sold by the different issuers. Bond market allows trading of debt instruments.

Debt mutual funds

Debt mutual funds  provide many advantages to investors. So, you can consider the benefits of debt mutual funds before investing in other debt instruments in the market. If you are looking to take tax benefit, you can consider debt mutual funds as it is more tax-efficient compared to the other safe investment options like bank fixed deposits (FDs).

Thus, people buy bonds for several good reasons. Consider the vital factors before you initiate your payment.