Benefits of Investing in Bonds - Key Advantages & What You Gain

21 Feb 2022|

1 min read |

by ICICI Securities Team

Investing in Bonds is a go-to option for both beginners and seasoned investors alike. Bonds are considered a safer bet than Equity Instruments as they are immune to market volatility. Let us look at the features of Bonds and the benefits of Bonds that make them popular:

Key Features of Bonds

Bonds are classified into four categories:

Fixed-Interest Bonds: These instruments offer a fixed interest rate throughout the maturity period. Investors receive the same interest regardless of the market conditions.

Floating-Interest Bonds: The interest rate of these instruments gets decided by the prevailing market conditions.

Perpetual Bonds: These Bonds do not have a maturity period, and the interest gets paid for perpetuity. However, the issuing company has no obligation to repay the principal amount.

Inflation-Linked Bonds: These Bonds get issued to combat the adverse effect of inflation. However, the interest rates offered are lower than fixed-interest Bonds.

Bonds can be both listed and unlisted. They can also be backed by the issuing company's assets, making them secured bonds, or be issued without any collateral. Here are the standard features of Bonds:

Face value: This refers to the price of a single Bond.

Interest or coupon rate: This refers to the amount that is payable periodically to the investor. The coupon can be fixed or floating.

Tenure: This refers to the time within which the Bonds mature. The obligation of the issuing company to keep paying the coupon continues until the maturity of the Bonds. The only exception is if the company or investors exercise the Put or Call option attached to the Bond.

Bond yield: It means the returns investors get from the Bond. The coupon rate, when divided by the current market Bond price provides returns. Yield and Bond price move in opposite directions. When the price rises, the yield declines; and when the Bond price falls, the output goes up.

Credit rating: This refers to the rating that is given to the Bonds by credit rating agencies. It is an assessment of the issuing company's performance in the long term and helps instil confidence in investors.

Benefits of Investing in Bonds

Bonds help diversify the investment portfolio. A well-established principle of personal finance is that one should never keep all the eggs in one basket and adding Bonds to your investment kitty helps you achieve just that. Through diversification, you can minimise your risks in the event your other investments start performing poorly. This is one of the primary benefits of Bonds.

Compared to other instruments, Bonds offer assured returns. They are relatively inelastic to the market fluctuations.

Bonds are like a contract between the issuing company and the investors. The companies are bound to repay the interest and the principal amount of the Bond. Moreover, bondholders are considered creditors of the company and get preference for debt repayment if any bankruptcy proceeds against the issuing company.

Conclusion

Many investors prefer investing in Bonds as they provide a steady source of income. Risk-averse investors are particularly keen on parking their money in Bonds and protecting themselves from sudden crashes in the stock market.

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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