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How To Buy Corporate Bonds In India


For fixed-income earners, bonds can be a prudent investment option. When you invest in bonds, you are basically lending money to the institution issuing the bond. In return, you get an interest. Bonds may include government securities, treasury bills and corporate bonds, among others. In a highly volatile market, bonds can be a good investment option to hedge your portfolio.




how to buy corporate bonds in india



Government and corporate houses raise capital through which they finance various ongoing projects and issue bonds. As they are fixed-income products, they carry lower risk than equities and give your portfolio a good balance.


While perpetual bonds, long-term bonds and short-term bonds are based on maturity, those based on coupons include zero-coupon bonds and fixed-rate bonds. Before investing in a corporate bond, research on the company and its fundamentals. See its financials, and it is in your interest to invest in the bond of the company that is financially sound and established. If you want to invest in corporate bonds, you need to have a Demat account where the bonds purchased get deposited after purchase.


The concept of municipal bonds is not new in the country. The Bangalore Municipal Corporation was the first entity to issue municipal bonds. The Securities and Exchange Board of India (SEBI) in 2015 issued regulations for issuing municipal bonds. These bonds are traded in the primary and secondary market and you can buy them through brokerage firms, banks, and bond dealers.


For buying municipal bonds from the primary market, you need to follow the retail order period process. However, it is prudent to go for it only if you are willing to invest a large amount as in the primary market bonds are released in high denominations. To buy bonds from the secondary market, you need to have a Demat account. Post this, you can go ahead and buy bonds from brokerage firms, banks, or bond dealers.


Gilt mutual funds can be a convenient option if you want to invest in government bonds. These funds are a category of debt mutual funds that solely invest in bonds and fixed-income securities. It is essential to note gilt funds are slightly different from bond funds which may invest in corporate bonds. Gilt mutual funds entirely invest in government securities. However, there are a few things you must consider before investing in gilt mutual funds.


Direct investment is another option to buy government bonds. All you need to do is have a demat account and a trading account with a brokerage house. Once you have them, you can buy and sell bonds as per your choice.


RBI Retail Direct, launched last year in November, provides another opportunity for investors to invest in bonds. If you are looking forward to investing directly in government bonds, RBI Retail Direct can help facilitate the same. If you wish to invest, you need to have a direct gilt account. To open an account:


Investing in bonds via RBI Retail Direct has some benefits. You need not pay any fee for opening and maintaining the account. While government bonds may not face credit risk, they do carry interest rate risk. However, note that here too you need to hold on to the bonds until maturity, as selling them in a rising interest rate scenario can result in losses.


Note that the buying proposition can be a little tricky if you buy bonds from the secondary market. In such a scenario, gilt mutual funds can be a better option as it offers a diversified portfolio and helps you contain volatility.


Buying Bond ETFs is another way to invest in bonds. Bond ETFs are passive investments and traded like stock ETFs on exchanges. These ETFs invest in bonds like traditional bond mutual funds and as they are passive investments, they have much lower costs compared to active funds.


Bond platforms are another way to invest in bonds. To invest, you need to open a trading account on these platforms after completing KYC formalities. While the minimum ticket size varies across platforms, most platforms allow you to invest from as little as INR 1000.


Through these platforms, you can buy government bonds, corporate bonds, and perpetual bonds, among others. These platforms offer a secure environment from where you can carry out the required transactions. However, before choosing a platform, do check out its review and adopt due diligence.


You need to consider certain essential things while investing in bonds. Note that the interest received from bonds is fully taxable, and if you fall in the high tax bracket, your tax outgo may increase.Also, while buying bonds, you must ensure that the securities are of high quality (AAA rated). Else, you might find it difficult to sell in the secondary market. In other words, liquidity can be an issue with securities with low grades. Having said that, if done right, bonds can help you easily diversify your portfolio and sail through volatile times with ease.


Corporate bonds are debt securities issued by a company to raise funds for a specific time duration. You can invest in corporate bonds through coin.zerodha.com/corporatebonds/invest. The maximum order value for corporate bonds is Rs 2 lacs per transaction.


Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. When one buys a corporate bond, one lends money to the "issuer," the company that issued the bond. In exchange, the company promises to return the money, also known as "principal," on a specified maturity date. Until that date, the company usually pays you a stated rate of interest, generally semiannually. While a corporate bond gives an IOU from the company, it does not have an ownership interest in the issuing company, unlike when one purchases the company's equity stock.


One of the announcements in the Budget 2005-06 was to appoint a high level expert committee on corporate bonds and securitization to look into the legal, regulatory, tax and market design issues in the development of corporate bond market.


A committee was formed under the Chairmanship of Dr. R.H. Patil to look into the factors inhibiting the development of an active debt market and recommend policy actions necessary to develop an appropriate market infrastructure for the growth of an active corporate bond market.


It tells the total return you will receive if you hold a bond until maturity. It also enables you to compare bonds with different maturities and coupons. Yield to maturity includes all your interest plus any capital gain you will realize (if you purchase the bond below par) or minus any capital loss you will suffer (if you purchase the bond above par).


A corporate bond is a type of debt security that is issued by a firm and sold to investors to raise financing for a variety of reasons such as to promote ongoing operations, M&A, or to expand the business. Investment in corporate bonds can be done in two ways. First, an investor can buy individual corporate bonds through a broker. The second option is to go via mutual funds or exchange-traded funds (ETFs).


To avoid the hassle of getting into an analysis of fundamentals of the company, one can invest through alternatives such as mutual funds or ETFs that focus on corporate bonds as it gives benefits in the form of diversification and professional management. The risk associated with this investment option differs from the risk involved in purchasing individual bonds. Investing in corporate bonds makes it easier for the investor to analyze as the investor is required to check only the holding of that specific fund to decide whether or not one should purchase it. For example, if an XYZ scheme is 100% holding in AAA corporate bonds, then less data is left for an investor to affirm before investing.


Corporate bonds are evaluated and assigned a rating based on credit history and ability to repay obligations. The higher the rating, the safer the investment as measured by the likelihood of repayment of principal and interest.


Corporate bonds are an excellent choice for investors looking for a fixed but higher income from a safe option. Corporate bonds are a low-risk investment vehicle when compared to debt funds as it ensures capital protection. However, these bonds are not entirely safe. If you opt for corporate bond funds that invest in high-quality debt instruments, then it can serve your financial goals better.Long-term debt funds often tend to become riskier when interest rates fluctuate beyond expectations. As a result, corporate bond funds invest in scrips to combat volatility. They usually go for an investment horizon of one year to four years. This can be an added benefit if you remain invested for up to three years. It can also prove to be more tax-efficient if you fall in the highest income tax slab.


Corporate bond funds invest predominantly in debt papers. Companies issue debt papers, which include bonds, debentures, commercial papers, and structured obligations. All of these components carry a unique risk profile, and the maturity date also varies.


When you buy a bond, the company will payout interest regularly until you exit the corporate bond or the bond matures. This interest is called the coupon, which is a certain percentage of the par value.


If you are holding your corporate bond fund for less than three years, then you must pay short-term capital gains tax (STCG) based on your tax slab. On the other hand, Section 112 of the Indian Income Tax mandates 20% tax on long-term capital gains. This applies to those who hold the bond for more than three years.


Corporate bond funds, sometimes, do take small exposures to government securities as well. But they do so only when no suitable opportunities in the credit space are available. On average, corporate bond funds will have approximately 5.22% allocation to sovereign fixed income.


There is a debt market where several bonds are traded. In this market, the prices of different bonds can rise or fall, as they do on the stock markets.For instance, a mutual fund buys a bond, and its price subsequently rises. Then, it can make additional money over and above what it would have made out of the interest income alone. However, it could also go the other way. 041b061a72


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