CORPORATE BONDS

Sovereign Gold Bonds (SGB) are government securities issued by RBI on behalf of thegovernment and are valued in grams of gold.They are alternatives to owning physical gold.

• Safety and Security - As SGBs are held electronically in a Demat account, it provides securityand there are no hassles of storing and safeguarding risks.
• Fixed income - SGBs offer a consistent source of income with a fixed 2.5 % interest rate p.a.
• Capital appreciation - When the cost of gold increases, the value of the SGBs will be appreciated.
• Tax benefits - Tax Deducted at Source(TDS) does not apply to the interest income earnedthrough SGBs.Also, capital gains tax is exempted from redemption if the bonds are held until maturity.

Government securities / Treasury Bills are securities backed and issued by the Government ofIndia through RBI and are of multiple tenors.
Reasons to invest in G - sec are:

• G - secs are low - risk instruments as they are backed by the government for interestpayments and principal repayment.
• G - secs can be held in a digital form in a demat account.
• Government bonds are available in a diverse range of maturity options from 91 daysto 40 years.
• G - secs can be tradable on exchanges so can be sold and transferred.
• When investing in Government Securities, the investors have the added advantage ofpledging the securities for cash margin requirements.
• Risk - free investment option with no credit risk associated.

The reasons to invest in Bond Public Issues are:

• Low Ticket Size - The minimum amount of investment in a bond public issue is Rs. 10000 whichis ideal for investors with a moderate amount to invest.
• Regular Source of Income - Bond public issue offers a fixed interest rate thereby providing asteady source of income.
• SEBI Regulated - There are stringent guidelines and regulations for Bond Public Issues whichare regulated by SEBI.
• Listed - Bond Public Issues are listed on the stock exchange; so the holders have the option toexit from the investment prior to maturity date.

Bond selection is important for optimal portfolio management for the following reasons:

• Risk management - It can reduce the risk of default and can stabilize the overall portfolio.
• Income generation - The selection of bonds with attractive yield and consistent couponpayments contributes to the overall income generated by a portfolio.
• Capital preservation - Selecting high - quality bonds with low default risk and strong creditratings protects the principal investment.
• Duration management - Bonds with varying durations help to adjust the overall portfolio’ssensitivity to interest rate movements.
• Portfolio diversification - Bonds with different maturities, issuers, and credit qualities canreduce the overall risk and enhance the risk - adjusted returns of their portfolio.
• Liquidity & accessibility - The selection of liquid bonds allows investors to buy or sell their positions, ensuring liquidity when needed.

The face value is a security's nominal or stated value as stated by its issuer. For bonds, itsignifies the amount paid to the holder upon maturity also known as “par value”.

The coupon rate is the interest rate that bond issuers provide to bondholders on the bond’sface value.

Primary bond markets refer to the market where newly issued bonds are sold. These bondscan either be sold via public offering of bonds or exclusively sold to qualified investorsthrough private placement.The secondary market is where investors engage in the trading of securities without theinvolvement of the issuer of bonds.The prices of securities in the secondary market aredetermined by the prevailing supply and demand dynamics.

The face value is a security's nominal or stated value as stated by its issuer. The market priceis the price at which bonds are traded.The investment amount is the sum that an investorpays to purchase a bond which is the sum of the market price and accrued interest.

The coupon rate is the interest rate that bond issuers provide to bondholders based on the bond’s face value.The yield to maturity indicates a bond’s total value upon maturity, including all interestpayments and the return of the principal.The yield varies inversely with the market price ofthe Bond.The key difference between a coupon rate and yield to maturity is that the coupon rateremains constant over the bond’s tenure while the yield to maturity keeps fluctuating basedon various factors such as the prevailing market price of the bond and the time left until its maturity.For further insights, please visit www.thefixedincome.com

There are several characteristics of bonds that investors should take into consideration.Face value - The face value is the nominal or stated value of a security as stated by its issuer.For bonds, it signifies the amount paid to the holder upon maturity also known as “par value”.Coupon rate - The coupon rate is the interest rate that bond issuers provide to bondholdersbased on the bond’s face value.Maturity date - Maturity is the time when the bond issuer must repay the original bond valueto the bondholder. Tenure - Tenure or term denotes the period after which bonds mature.These contractsrepresent financial debt agreements between issuers and investors, which remain valid onlyuntil the conclusion of the specified tenure. Price - Bond price is the present value of the bond’s future cash flows and fluctuates in response to changes in the supply and demand of the bonds.Yield to maturity - The yield to maturity indicates a bond’s total value upon maturity, includingall interest payments and the return of the principal.

A bond is a debt instrument whereas a stock is an equity investment. The primary difference between bonds and stocks is that stocks represent ownership of a small portion of a company while bonds represent debt owed by an entity. Another difference is that stocks may or may not grow in value, while bonds pay fixed interest over time with repayment of principal amount on maturity.

A bond is a debt instrument whereas, in a mutual fund, money is pooled from variousinvestors and invested in a bucket of stocks, bonds, and other assets managed by a team offund managers.Bond duration is mostly long - term and exceeds 3 - 5 years whereas mutualfund duration can be short - term or long - term.For a comprehensive understanding, visit www.thefixedincome.com

Duration quantifies the number of years it would take for an investor to be repaid a bond’s price through the sum of all the bond’s cash flows. It measures the sensitivity of the bond’s prices or other debt instruments to changes in interest rates. The higher the duration, the more of a bond’s price will drop as interest rates rise.
Convexity refers to the curvature in the relationship between bond prices and bond yields. It tells about the way a bond’s price and yield interact when it is subjected to interest rate changes.

Yes, bonds are subject to taxation. While investing in bonds, two types of income are earned.
Interest income - When you invest in bonds / NCDs, you earn interest income until its maturity which will be subject to tax at applicable slab rates and TDS will be deducted(other than government bonds).
Capital Gains - When an investor sells the listed bonds in the secondary market, capital taxmay arise - short - term capital gain / loss or long - term capital gains / loss which is determinedbased on the period of holding the bond.Short - term capital gains would be taxed at applicable slab rates.Long - term capital gains are taxed at a concessional rate of 10% without indexation benefits.

An OBPP, registered with SEBI is an online bond platform provider that facilitates the selling of listed bonds and non-convertible debentures on its platform, especially catering to retail investors.For a deeper insight, visit www.thefixedincome.com

Fixed-rate bonds are issued for a fixed tenure with a fixed coupon rate while floating-rate bonds have a variable coupon rate. Unlike fixed-rate bonds, floating-rate bonds are vulnerable to interest rate movements.

The bond laddering strategy consists of investing multiple bonds with different maturities; thus you constantly have bonds maturing. So if the interest rate rises, these bonds can be reinvested at the new market rate. Also, as each bond matures, the principal can be reinvested in new bonds with the longest term you originally chose for your ladder.

A callable bond is a bond that the issuer has right to redeem or call back the bonds before it meets the said maturity dates.
A non-callable bond is a bond which do not have a call provision. Once issued, the issuercannot redeem the bonds before their specified maturity date.