Learn the Basics of Indian Bond Market

Introduction of Bonds

Being a stock investor you must know about bonds. Bond is the other side of your investment coin; it helps in making your portfolio well diversified.

Bond is a debt market instrument; Bond promises to the debt holders to repay the principal along with interest. Some bonds do not pay interest.

When you buy stocks you become a part owner of the company whereas in case of bonds, being a bondholder you become a creditor of the company. Bond represents debt obligations so the company issue bonds have to repay over a time.

Who does issue the Bonds?

Generally Corporates, Government or Government Agency issue bonds. They issue bonds in order to borrow money to expand their business, Government borrows money to fund road, schools, dam.

What is the purpose of the issue the bonds?

There are various reasons why Corporates and Government bodies issue bonds

• Corporates often borrow to grow their business.
• To buy property and equipment.
• In order to undertake profitable projects.
• For research and development.
• To hire more employees.
• The government borrows money to fund road, schools, dam etc.

Why Corporates issue bonds?

But the question arises here is that why Corporates issue bonds? Why don’t they go to the banks? The reason is a large organization often need far more money than the Banks can provide, so the bond is the solution to them, many individual investors play the role of lender, thousands of investors lend a portion of the capital needed.

If you want you can sell your bond to other investors or buy bonds from other investors. Which means you can buy or sell bonds in the secondary market.

 Why should one invest in Bonds?

It is an obvious question that why one will lend their hard earned money? The issuer of the bond pays a regular interest at a predetermined rate at a regular interval and repay the full borrowed amount after a fixed tenure. The date on which the issuer must repay the borrowed amount is known as maturity date.