Bonds are fixed-income investment instruments where you, as an investor, lend money to an issuer (government, company, or institution). In return, the issuer promises to:

· Pay regular interest (called a coupon), and

· Repay the principal amount on a specified maturity date.

In simple terms: Bonds = Loan given by investor + assured income.

Key Features of Bonds

· Issuer: Government, PSU, or Corporate

· Interest (Coupon): Fixed or floating

· Maturity: Short, medium, or long term

· Risk Level: Lower than equities

· Returns: Predictable and stable

Types of Bonds

1. Government Bonds (G-Secs)

Issued by central or state governments.

Examples:

· Treasury Bills (T-Bills)

· Government of India Bonds

· State Development Loans (SDLs)

Features:

· Very low risk

· Lower returns

· Suitable for conservative investors

2. Corporate Bonds

Issued by private or public companies.

Features:

· Higher returns than government bonds

· Moderate to high risk (depends on company rating)

· Credit rating is important (AAA, AA, etc.)

3. PSU Bonds

Issued by Public Sector Undertakings (PSUs).

Features:

· Backed by government-owned entities

· Moderate risk

· Attractive for long-term income seekers

4. Tax-Free Bonds

Interest earned is exempt from tax.

Issued by:

· Government-backed institutions (NHAI, REC, PFC, etc.)

Best for: Investors in higher tax brackets

5. Floating Rate Bonds

Interest rate changes periodically based on a benchmark.

Features:

· Protection against rising interest rates

· Less price volatility

6. Fixed Rate Bonds

Interest rate remains constant till maturity.

Features:

· Stable income

· Affected by interest rate movements

7. Zero-Coupon Bonds

No periodic interest payments.

Features:

· Issued at a discount

· Redeemed at face value

· Ideal for long-term goals

8. Convertible Bonds

Can be converted into equity shares after a certain period.

Features:

· Lower interest initially

· Potential equity upside

9. High-Yield (Junk) Bonds

Issued by lower-rated companies.

Features:

· Very high interest

· High default risk

· Suitable only for aggressive investors

10. Inflation-Indexed Bonds

Returns are linked to inflation.

Features:

· Protects purchasing power

· Ideal during high inflation periods

Who Should Invest in Bonds?

· Retired individuals

· Conservative investors

· Investors seeking regular income

· Portfolio diversification