Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Introduction to Bonds

1 min read

What is a bond?

Bonds are investment vehicles. They are meant especially for investors with relatively less appetite for risk and having an intention to earn returns higher than what are possible to earn from other avenues like Fixed Deposits that are considered as safe. So, safety and return both are of equal concern for those investing in Bonds. Most categories of bonds will buy by mutual fund companies and corporate.

 
Where do they invest?

This Bonds money will be invested in government initiated developments and activities.

Government Bonds

The Government Treasury and its agencies issue these bonds. Treasury bonds are considered the highest quality of all bonds because the credit of the government backs them and so the payment upon maturity is more or less guaranteed. In exchange for this very high margin of credit safety, they have the lowest yields.

Corporate Bonds

These are issued by various companies to finance their operations, expansion activities etc. Credit rating agencies such as CRISIL, CARE and ICRA rate these instruments in India on the basis of their degree of safety, which is defined as their ability to pay the amount on maturity. The risk-return trade off is witnessed here as well, for companies with good rating offer less yield.

Municipal Bonds

These bonds are issued by governments and municipalities. Considered as reasonably safe, these bonds provide varying returns depending upon their maturities.

Infrastructure Bonds

These bonds will be released by the leading banks that are approved by RBI and Government of India. For these bonds, credit rating agencies will give ratings based on their cash flow and other financial aspects. Right now in India ICICI, IDBI are 2 banks that release these bonds into the market every year.

What are the risks associated?

Bonds investment is almost risk free and guaranteed returns upfront.

What are the risks associated?

Bonds investment is almost risk free and guaranteed returns upfront.

What are the returns associated?

These bonds typically give returns in 2 ways.

One is fixed matured amount on the date of maturity. This maturity period will vary from months to years. Here interest amount will be accumulated with capital and paid at the date of maturity.

Another one is operated on fixed interest rate, which will distribute the interest amount to the investors periodically. At the end of the maturity date, the original amount will be returned.

1) Interest is fully exempt from Income tax.

2) The Bonds are exempt from Wealth Tax.

3) Investors can avail of rebate under Section 88 of the Income Tax Act, 1961 by investing in this Bond.

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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