How to Buy Corporate Bonds in India?

Comprehensive Guide on Investing in Corporate Bonds in India

Investing is a commitment to your future self and those connected to you. It's a journey that aligns with your goals, whether they involve travel, early retirement, business ventures, or marriage. While many follow market trends, independent thinkers often craft long-term investment strategies that provide both short-term fulfilment and sustained growth. As Albert Einstein famously stated, "Compound interest is the eighth wonder of the world," emphasizing the snowball effect that fuels financial growth over time.

Understanding Bonds

In the vast landscape of investments, bonds play a crucial role, offering stability and diversity. These fixed-income instruments, traded by companies or governments, come in various forms, such as Corporate Bonds, Municipal Bonds, G-Secs, Zero Interest Bonds, Perpetual Bonds, Structured Bonds, Floating Rate Bonds, and Treasury Bonds. This article focuses on Corporate Bonds, shedding light on how to buy, invest, and sell them in India.

Corporate Bonds: A Brief Overview

Corporate bonds serve as a means for companies to raise funds for expansions, acquisitions, or operational needs. Investors, in turn, lend money to these companies, relying on credit agency evaluations of the company's past and future payment capabilities. Unlike equities, bondholders don't have ownership rights but receive fixed interest rates and predetermined tenures, minimizing the risk of loss.

Types of Corporate Bonds

1. Perpetual Bonds:

•  Issued without a maturity date, paying fixed coupon rates.
•  Popular Additional Tier 1 bonds offer higher yields but come with the risk of interest payments or principal write-offs.

2. Long-term Bonds:

•  Spanning five to forty years, issued by banks, governments, and corporates.
•  Higher yields but increased sensitivity to market interest rate changes over time.

3. Short-term Bonds:

•  Mostly issued by corporates, less risky compared to long-term bonds.
•  Offers liquidity and a source of portfolio diversification.

4. Zero-Coupon Bonds:

•  Sold at a discount, no annual interest payments.
•  Ideal for those anticipating specific funds after a more extended period, with income earned through capital appreciation.

5. Fixed-Rate Bonds:

•  Provide stability and capital safety during market crashes.
•  Can be short-term or long-term with a lock-in period, charging penalties for early withdrawal.

How to Invest in Corporate Bonds

Investors seeking to enter the bond market need a Demat account, facilitating electronic holding of purchased bonds. The investment decision should align with one's risk appetite, investment horizon, and allocated amount. Bonds can be acquired in the primary market directly from companies or traded in the secondary market among investors. Platforms like BondsIndia offer a range of bond options with credit ratings, allowing investors to make informed decisions.

Benefits of Corporate Bonds in India

1. Diversity: Options catering to various risk appetites, from high-risk to low-risk bonds.

2. Security: Secured bonds ensure priority payment in case of unforeseen financial troubles for the issuing company.

3. Secondary Source of Income: Regular interest payments provide a secondary income source, reducing dependence on maturity dates.

4. Liquidity: Tradable in the secondary market, allowing investors to buy and sell bonds easily.

5. Gains: Higher potential gains compared to government bonds, albeit with increased risk.

Selling Corporate Bonds in India

While bonds are meant to be held till maturity, selling them in the secondary market is an option. Factors like interest rates and demand influence the selling price. Investors can use online settlement platforms for safer transactions, ensuring competitive prices and secure settlements. Platforms like BondsIndia leverage blockchain and technology for secure buying and selling of bonds.

Conclusion

Investing in corporate bonds demands diligence and careful consideration. Thorough research into the bond market, a company's financial standing, and its background is crucial. Consulting experts and using reputable platforms like BondsIndia can provide valuable insights, ensuring credibility in buying or selling decisions. In the dynamic world of investments, patience, knowledge, and an open mind are key to making informed choices that benefit your financial future.

FAQs:

1. What is the primary purpose of Corporate Bonds in India?

Ans: Corporate bonds serve as a means for companies to raise funds for expansions, acquisitions, or operational needs.

2. How do Perpetual Bonds differ from other corporate bond types?

Ans: Perpetual bonds lack a maturity date, offering fixed coupon rates and presenting higher yields with associated risks.

3. What are the benefits of investing in Short-term Bonds?

Ans: Short-term bonds, primarily issued by corporates, provide lower risk, liquidity, and a source of portfolio diversification.

4. How can investors ensure liquidity when holding Corporate Bonds?

Ans: Corporate bonds, being tradable in the secondary market, offer liquidity, allowing investors to buy and sell them with ease.

5. Is there a recommended platform for buying and selling Corporate Bonds?

Ans: BondsIndia, a blockchain-based platform, ensures secure transactions, competitive prices, and serves as a knowledge-sharing hub.

6. Can investors sell Corporate Bonds before maturity, and what factors influence the selling price?

Ans: Yes, bonds can be sold before maturity. Factors such as interest rates and demand impact the selling price in the secondary market.

7. Why is patience crucial when investing in Corporate Bonds?

Ans: In the dynamic world of investments, patience allows for thorough research, ensuring informed decisions for a secure financial future.