Bonds in India

Stock market fluctuations do not directly affect the bond returns. Bonds usually pay fixed interest payout until their maturity dates. However, factors like prevailing interest rate cycles, systemic liquidity, macro-economic conditions, etc. may impact both bond markets and equity markets, often with opposite impacts.

The interest earned on bonds is fully taxable as per the individual’s income tax slab, barring a few exceptions such as in case of tax-free bonds issued by REC, PFC, etc. if you sell bonds on maturity, capital gains tax applies based on the holding period and whether the bond is listed or unlisted.

The valuation of a bond depends on various parameters such as coupon rate, prevailing market interest rates, residual tenure, issuer’s credit rating, etc.

Individuals should invest in bonds when they want lower risk and stable income, especially during the periods of market volatility or high interest rates.

Bonds can be bought through primary and secondary markets, which includes stock exchanges, online bond platforms, banks and financial institutions.

There are many bonds that allow investments starting from Rs 1,000.

Most listed bonds can be sold in the secondary market before their maturity dates, subject to market liquidity and prevailing prices.

Bonds offer regular income and reduce portfolio volatility as compared to equity investments.

As compared to other investment options, bonds offer higher predictable returns without the volatility of equities.

Bond ratings indicate the creditworthiness of the issuer. Higher-rated bonds carry lower risk but they also usually offer lower returns, while lower-rated bonds may offer higher returns but also at higher risk.

When choosing bonds to invest in, compare YTM, bond issuer’s credit rating and financial standing, investment horizon.

Bonds are fixed income instruments offering fixed interest payments and principal at maturity to investors. Stocks or equities, on the other hand, represent ownership in a company and are more volatile than a bond.

Compared to equities, bonds carry less risk, especially government bonds and highly rated corporate bonds. However, they are riskier than traditional fixed investment options such as FD but then bonds also have the potential for higher returns and offer fixed interest income and principal at maturity.

When a bond issuer defaults on its repayments, the chances of recovering the obligated sum would depend on whether the bond is secured and its status in the capital structure. Senior secured bondholders receive the highest priority in receiving repayments, giving them the highest level of protection. Sub-ordinated or junior secured bondholders receive the second highest priority followed by unsecured bondholders.

Yield to Maturity of a bond is the annualised rate of return if the investors hold the bond till its maturity date. The formula used for calculating the YTM of a bond is YTM = [C+ (FV - PV) ÷ t] ÷ [(FV + PV) ÷ 2]; where - C = Coupon Payment, FV = Face Value , PV = Current Price and t = Years to Maturity.

Stock market fluctuations do not directly affect the bond returns. Bonds usually pay fixed interest payout until their maturity dates. However, factors like prevailing interest rate cycles, systemic liquidity, macro-economic conditions, etc. may impact both bond markets and equity markets, often with opposite impacts.

Accrued interest on a bond refers to the amount that has been accumulated since the principal investment or its last interest payment date but hasn’t yet been paid out to the bondholder.