A bond is like a loan that you give to a company or the government.
In return, they promise to pay you back with interest after a fixed time.
Think of it like this:
You lend ₹1,000 to a company today. They use your money, and after a few years, they return your ₹1,000 plus interest.
Key Characteristics of Bonds
- Fixed Interest (Coupon Rate) – You get a fixed income regularly (like 6% per year)
- Maturity Period – Bonds are for a set time (e.g., 5 years, 10 years)
- Face Value – The original amount you lend (usually ₹1,000 or ₹100 per bond)
- Low Risk (Generally) – Safer than shares, especially government bonds
- Tradable – You can buy or sell bonds in the market before maturity
How Do Bonds Work?
- You buy a bond (say ₹1,000)
- You get regular interest (e.g. ₹60 per year for 6% bond)
- After the bond matures (say in 5 years), you get your full ₹1,000 back
Types of Bonds in India
| Type of Bond | Description |
|---|---|
| Government Bonds | Issued by the RBI or central/state governments; very safe |
| Corporate Bonds | Issued by private companies; higher return but more risk |
| Tax-Free Bonds | Interest earned is not taxed (e.g., from NHAI, REC) |
| Sovereign Gold Bonds | Linked to gold prices; pays interest + gold value |
| Zero Coupon Bonds | No regular interest; sold at a discount and redeemed at full value |
| Convertible Bonds | Can be converted into company shares later |
| Green Bonds | Used to raise money for environmental or clean energy projects |
Why Do People Buy Bonds?
Steady Income – Great for retirees or conservative investors
Safer Than Stocks – Less market risk
Diversification – Balances your investment portfolio
Tax Benefits – Some bonds offer tax exemptions under Section 54EC or are completely tax-free
Simple Example
You invest ₹10,000 in a bond that pays 7% yearly interest for 5 years.
Every year, you get ₹700 as interest.
After 5 years, you get back your full ₹10,000.
Total gain = ₹3,500 over 5 years
