Nowadays people are very prudent for their future they don’t want to take risk so they invest their excess fund in different kinds of security like stocks, debentures, bonds etc. In stock market profit or loss depends on market fluctuations and having higher risk. An investor should never put all the eggs in one basket. An investor who doesn’t want to take risk or who is risk adverse in nature should invest in bond because bond is the security having less risk and contains fixed interest rate.
Firstly we try to understand MEANINGof bond:
WHAT IS BOND?
Bond is the debt instruments which generally issued by companies and government to meet its financial obligation. A bond is also called fixed income bearing security for the lender. Bonds also contain less risk for the lender or investor.
WHAT IS GOVERNEMNT BOND?
Government bond is the debt instrument which is issued by state and central government to meet its financial obligation. It is generally long term security having 5-40 years of life. Government generally issues such bonds to meet financial crises and requires such funds for the purpose of infrastructure development.
Government bonds were earlier issued for large companies and corporate bank to invest but now small investors also having an opportunity to invest in it. Bonds having less risk and bearing fixed rate of interest it is the best security for the investor who is risk adverse in nature and who want fixed income.
People generally having belief on these bonds because these bonds are offered by government and money with government will be refunded back to the investor in a secured manner.
- FIXED RATE BONDS: These are the bonds which carries fixed rate of interest on investment irrespective of fluctuation in the market.
- FLOATING RATE BONDs (FRBs): Interest on these bonds depends on the market fluctuations.
- SOVERIEGN GOLD BONDs (SGBs): The central government issues sovereign gold bond wherein entities can invest in these bonds without burden of investing in physical bond and interest earned on these bonds is exempt from income tax.
- ZERO COUPON BONDs: As its name suggests, zero coupon bonds do not earn any interest and the earning in this bonds shall be the difference between the issuance price and redemption price.