Are you the person who hates fluctuations and loves stable income. Then Yes, Investing in Bonds is great idea, given you have the Low Risk Appetite too. You can check you risk appetite with this ET Money Tool. You will get your results as shown in this Image. On a side note, ET Genius uses these results to make portfolio decisions on behalf of you, which you may or may not like. If your risk appetite comes out to be high, better invest part of your income with ET Genius or somewhere else.
Moving on..
A bond is a signed document issued by an entity (Company or Government) as a proof that an assured sum will be repaid to your after certain fixed period, often in addition with some fixed interest. If the bond is issued by a private company it’s called corporate bond. In simple words, we are lending money to a company in return to a certificate issued by the company promising it will return the principal amount at maturity along with paying interest periodically.
A bond is considered low risk instrument because if a company goes bankrupt, at the time of liquidation of company assets, the Bond holders are paid first and later the Share holders. Even in the bond holders, the AAA+ rated Bond Holders paid before AA+, followed by AA, A+ bond holders depending on how many categories of Bonds issued by the company. These rating are provided by the Credit Rating Agencies like CRISIL, so that Lenders like you and me won’t be doomed. So its always advisable to buy a bond from a known company like Mahindra Finance, State Bank of India, etc. If you want to Go Pro, you can check the Balance Sheets of the company to access their health before choosing one.
The interest rates on a Bond can range from 8% to 13% depending on the company, rating and tenure of the bond. The interest income frequency can be monthly, quarterly or yearly as dictated by the Issuer. Higher the tenure, higher the interest rate. Well known is the company, Higher the rating and lower the interest rate offered. You can compare various bonds available in the market on platforms like GoldenPi.
Let me know in the comments if you know of any other credible platforms for investing in bonds exclusively.
Related: How to invest in Bonds for Beginners
