what is a bond? and what are the kinds of bond In India
Bond is one of the favourite investment options among investor in India. When the investor buys a Bond, the issuer company borrows money from the lender (bondholder) and, in return, they pay interest on the principal amount. The interest is called the coupon. The bondholder and issuer come into a formal contract where the issuer decides to repay borrowed money along with interest at fixed intervals. The money will be repaid on a semi-annual, annual or monthly basis.
Bonds are different from stocks. Stockholders have an equity stake in the company, while the bondholder has a creditor stake in the company where they have invested. Bondholders are lenders for the company whereas stockholders enjoy the status of owners in the company.
There are several types of bonds are available in Indian including Public Sector Undertaking bonds, Corporate Bonds etc.
The bond issued by the Central and State Governments in India are called Government security. These bonds come with lesser credit risk. It is considered as one of the safest investment options in India. These bonds pay interest on a semi-annual basis.
Corporate bonds are issued by corporate houses. Corporates issue bonds to satisfy their financial needs and are open to everyone. Regular interest will be given to the bondholder. But it carries relatively more risks than government securities. The risk associated with such bonds depends upon the corporation backing the bond, market conditions, the company’s industry and its investment rating.
By investing in this type of bond the government allows the investors to be either partially or fully released from paying taxes.
Sovereign Gold Bond
The Government of India also issues sovereign Gold Bonds. Gold bond is a form of security as it in the form of the Government of India stock. It also carries interest rate which is paid regularly and has zero risks of handling that exists in physical gold.
Usually, most types of bonds are offered at a fixed interest rate. However, zero-coupon bonds do not come with any specific coupon rate or interest rate. They are offered at a discount on the face value, and on maturity, investors get the face value back. The difference between the two is profit.