Last updated: November 30th, 2024
Saurabh and Ashish were colleagues who worked in a software development firm in Gurgaon. Both got a salary of Rs. 50,000 monthly. However, Saurabh saved a part of it, and when he collected Rs. 100,000, he invested it in a government bond that had a coupon rate of 6% per annum. Ashish didn’t care much about investing. When he needed money for something, he applied for an instant personal loan in Gurgaon.
Suddenly, their firm was hit by a financial crisis, and both Saurabh and Ashish were laid off. However the financial situation was not very dire for Saurabh. He had saved the annual interest payments of Rs. 6000 from the bonds he had invested. So, he was able to cover expenses like utility bills and EMIs until he got the next job. Ashish was overwhelmed by his expenses and didn’t know what to do.
You don’t need to be someone like Ashish and learn about the importance of bonds in personal finance the hard way. Start scrolling and understand their significance now.
Bonds Bond You to a Stable Income
Suppose our government wants funds to enhance infrastructure. To get funds, it will issue bonds. This bond will be for Rs.1,00,000. It will have an interest or coupon rate of 7% per year. It’ll mature in 10 years.
· The investor (in this case, you) gets this bond for Rs.1,00,000.
· Because of the interest of 7%, you will be paid Rs. 7,000 every year.
· After 10 years, when the bond matures, the government will pay you back what you invested, i.e., Rs. 1,00,000.
A Guarantee of Less Stress and More Peace
There’s no guarantee of anything in life. But when you invest in bonds, the assurance of a fixed interest rate payment is always there. If you’re looking for a steady income source, it is possible by investing in Monthly Interest Paying Bonds. The low-risk nature of both corporate and government bonds makes them ideal for regular and gradual expansion of your finances.
The massive interest in investing in bonds can primarily be because of this reason. In fact, a study in Financial Express finds that the total value of the Indian bond market is ₹205.3 lakh crore. Out of these, government bonds hold 78% of the market because of their low-risk nature. Tools like albert.com can also help individuals manage their financial goals effectively by identifying investment opportunities in bonds and similar assets.
Higher Returns Minus Tax Payment
Let’s confess. We don’t love paying; we only love receiving. If you have certain personal finance goals, you’d look for avenues that help you get higher income and returns. This is especially true if you pay income tax.
Bonds offer a much higher interest returns than the traditional fixed deposits. Those with a lock-in period provide as much as 9% returns! Moreover, your earnings from bonds are never subject to taxation or TDS. This is another reason to invest in it as part of personal finance planning.
An Avenue to Make Immediate Profit
Suppose you buy a bond whose face value is Rs. 1,000. Its coupon rate is 8% per annum. You’ll get Rs. 80 yearly. Now, RBI cuts interest rates. The new bonds are issued with just 6% interest. So, the bond you have now is more attractive. It gives an 8% return and not 6%. You can sell it and get a profit of Rs. 1,200 easily.
Conclusion
Investment in bonds is a great approach for your financial growth. You receive a steady income and can use it to boost your savings. There are so many benefits to it. These include higher returns, a low-risk nature, and the ability to make immediate profits when the bond prices go up. It helps you grow your money in the long term, which proves invaluable in a crisis.
FAQs
1. Is there a single or multiple category of bonds?
Bonds are of different types. The central government issues government bonds. Municipal bonds are issued by municipalities. Private companies issue corporate bonds. Finally, asset-backed securities are issued by banks.
2. What’s the relation of bond prices with interest rates?
The cost of a bond goes opposite to the interest rates. If the coupon rate is higher than general interest rates, the bond becomes attractive to buyers on the secondary market. When the interest rate increases, a bond’s market price typically falls. This happens because new bonds get issued at higher rates.
3. Is getting monthly interest payments through bonds possible?
Yes. You can invest in bonds that offer monthly payouts. They offer liquidity and have lower credit risk. Such bonds are ideal if you seek regular cash flow.
4. What do I need to invest in bonds?
To invest in bonds, you need a Demat and a trading account. After that, complete the bank verification. Then, you can buy and sell bonds as you deem fit.