Bonds are a type of investment where you lend money to a borrower, such as a company or a government, for a fixed period of time. In return, you receive regular interest payments and get your money back at the end of the period. Bonds are considered a fixed-income security because they pay a fixed rate of interest, also called the coupon rate. However, the market value of bonds can change depending on the interest rates and the credit quality of the issuer. Bonds are generally seen as a safe and stable investment, but they also have some risks, such as default risk, inflation risk, and interest rate risk.
What are the different types of bonds?
Government bonds: These are issued by the central or state governments to finance their budget deficits or development projects. They have low risk and low interest rates. They are also called G-Secs, SDLs, or state guaranteed bonds.
Convertible bonds: These are a special type of corporate bonds that can be converted into a fixed number of shares of the issuing company at a predetermined price. They offer both the features of debt and equity, but not at the same time.
Corporate bonds: These are issued by private companies to raise capital for their operations or expansions. They have higher risk and higher interest rates than government bonds. They are also called NCDs or non-convertible debentures.
Sovereign gold bonds: These are bonds issued by the RBI on behalf of the government that are linked to the price of gold. They offer a fixed interest rate and a redemption value based on the prevailing gold price. They are also a way of investing in gold without holding physical gold
