What are benefits of Bond Investments for the Retail Investor
What are benefits of Bond Investments for the Retail Investor? Bond market in India have been around for almost as long as equity markets. For most retail investors, investment in bonds in India are seen as less exciting compared to equities, probably due to the relatively stable nature of bond investments. One can probably even argue that media coverage of stock markets is far more extensive than coverage of the bond markets.
What are benefits of Bond Investments for the Retail Investor? So what is a bonds in India? We learn in college that a bonds is a debt instrument issued by a company called corporate bonds or a instrument issued by a government called government bonds. The buyer of bonds is in effect loaning money to the institution and is promised the full principal plus a fixed periodic payout during the tenure of the bond. The total payouts received together with the final principal will be put together in a computation to determine the yield on the bond e.g. High yield bonds in India. Read – How to increase income from high yield bonds? The yield, in layman’s terms, is the effective interest rate earned on the bond for the entire duration. Some issuers issue zero-coupon bond, which do not have any payout during the bond tenure. The investor earns the difference between the purchase price of the bond and the principal value, also known as the face value. You can Buy Zero Coupon Bond from bondsindia.com
Read More – How to profit from rising interest rates? While investment banking trading desks make profits on trading bonds online on a regular basis, by taking on credit risk and interest rate duration risk, this is often not the case for the retail investor, who does not usually have the availability of best bonds interest rate and zero coupon bond interest rate. A retail investor’s objective in purchasing bonds can be seen as an attempt to earn a better yield compared to ordinary fixed deposit interest rates. If the issuer is sufficiently creditworthy, the investor should be able to receive his or her full principal at maturity of the bonds, which can have a tenure of anywhere from three months to fifteen years. At the same time, the investor may have an opportunity to invest in capital gains bonds from his bond investment if the market interest rates should fall. This therefore presents an additional benefits of bond investments over ordinary deposits. Trading platform for bonds in india. The bond market is still largely an over the counter market. Market participants comprise large investment banks, private banks and asset managers. Unlike stocks, which are traded on an exchange and hence have price transparency, bonds traded on the over the counter market do not exhibit this price transparency; quotes are given and taken over a platform such as Bloomberg or Reuters. With the lack of price transparency, there is also a lack of ready liquidity, as one would not be able to determine the liquidity for a particular bond issue. It can be argued that this is one of the reasons why investors are not as familiar with bonds investment in india as they are with stocks. One other way to purchase bonds would be to buy them direct from the issuer, which could be a central bank or a corporation. In most cases, the minimum investment might be higher than what most retail investors are prepared to invest in one go. With Asian central banks wishing to deepen and further develop the local currency bond markets, greater efforts in education can be seen as key to attracting retail investors towards the bond markets. Read More – Where to buy bonds in India, How to invest in bonds in india, How to buy bonds online in india