Corporate Bonds are debt securities issued by corporations for both short-term and long-term fundraising. It is offered at a premium, given against subsequent refunding or used to change the outstanding capital. They are generally without any security interest, with no lien or charge in the event of incurrence of execution.

What are Corporate Bonds?

The market price of a corporate bond will fluctuate based on a number of factors including interest rates, creditworthiness of the issuer, and overall market conditions.

Investors seeking income may find attractive yields available from high quality corporate bonds. However, it is important to remember that all investments involve risk and that there is no guarantee that you will get back your original investment amount.

Types of Bonds

Indian corporate bonds come in different shapes and sizes. From plain vanilla bonds to masala bonds, there is a bond for every investor. Here is a guide to the different types of Indian corporate bonds:

Plain Vanilla Bonds: These are the most basic type of bonds and are issued by companies to raise long-term capital. Masala bonds help companies to hedge against currency risk and also raise cheaper capital from foreign markets.

Stocks vs. Bonds

It is often said that one should diversify their portfolio. But what does that really mean? Is it possible to have too much diversity?

When it comes to stocks and bonds, there are a few key differences. Stocks are equity investments, meaning you own a piece of the company. As the company grows, so does the value of your investment. Bonds, on the other hand, are debt instruments. You’re essentially lending money to the bond issuer, which could be a corporation or the government. The bond will mature at a certain date and you will receive your initial investment plus interest payments along the way.

So which is better? That really depends on your goals and risk tolerance. In general, stocks tend to be more volatile than bonds, which means they can offer higher returns but also come with more risk. If you’re looking for stability and income, bonds may be a better choice. But if you’re willing to stomach some ups and downs in exchange for potentially bigger gains, stocks could be the way to go.

How to Buy and Sell in India

If you are looking to invest in Indian corporate bonds, there are a few things you should know. First, it is important to understand the difference between institutional and retail investors. Institutional investors include banks, insurance companies, and mutual funds, while retail investors are individuals.

Second, you need to be aware of the taxation rules for corporate bonds in India. Interest income from corporate bonds is taxed at 20%, while capital gains are taxed at 10%.

Third, it is important to research the credit quality of the issuer before investing in their bonds. The credit rating of a bond issuer will give you an idea of their ability to repay their debt obligations.

Fourth, consider the liquidity of the bond before investing. This refers to the ease with which you can sell the bond if you need to cash out your investment before its maturity date. Finally, make sure to compare different offers from different issuers before making your final decision.

Role of Government in the Bond Market

The government influences the bond market in India through its monetary policy, which is conducted by the Reserve Bank of India (RBI). The RBI uses a variety of tools to achieve its monetary policy objectives, including setting the repo rate, which is the rate at which banks borrow money from the RBI.

When the repo rate is high, banks are less likely to lend money to businesses and consumers, and this can lead to slower economic growth. Conversely, when the repo rate is low, banks are more likely to lend money, and this can lead to higher economic growth.

The RBI also sets the benchmark yield on government bonds. This yield is used as a reference point for pricing other types of bonds in the market. If the yield on government bonds goes up, it usually means that interest rates in the economy are also rising. This can make it more expensive for companies to borrow money for investment projects, and it can also make it more expensive for consumers to take out loans for big purchases like homes or cars.

Finally, the government influences the bond market indirectly through its fiscal policy. Fiscal policy refers to the government’s spending and taxation decisions. When the government spends more than it collects in taxes, this is called a deficit. To finance a deficit, the government has to borrow money by selling bonds. This increased demand for bonds can push up bond prices and lower yields.

Duration of the Bond

The duration of a bond is the amount of time until it matures, or comes due. The longer the duration, the greater the sensitivity to interest rate changes. For example, if interest rates rise, the prices of bonds with longer durations will fall more than bonds with shorter durations. This is because when interest rates go up, new bonds are issued with higher coupon rates, making older bonds with lower coupons less attractive.

Therefore, when deciding whether to buy a bond, investors must consider both the current yield and the duration. In general, investors should hold bonds until maturity in order to avoid capital losses. However, if interest rates rise sharply and an investor needs to sell the bond before maturity, then a bond with a shorter duration may be less risky.

Where to Find Information on Indian Corporate Bonds

There are a few different ways to get information on Indian corporate bonds. One way is to look up the website of the Securities and Exchange Board of India (SEBI), which regulates the securities market in India. Another way is to check out the websites of some of the major banks in India that deal in corporate bonds, such as HDFC Bank, Axis Bank, and ICICI Bank.

You can also find information on Indian corporate bonds by reading business news publications that cover the topic. The Economic Times and Business Standard are two examples of newspapers that regularly write about corporate bonds in India. Finally, there are a number of online forums and message boards where investors discuss various aspects of investing in Indian corporate bonds.