An investment avenue in which an investor loans money to an entity (government or corporate) that borrows funds for a defined period of time at a fixed interest rate. Bond market has not attracted retail investors to it. But in recent times, lackluster equity markets and low rate of interest have attracted retail investors towards bonds issued by corporate.
Advantage: The rate of interest is high.
Disadvantage: No security, interest earned is taxable. So before investing in bonds do check the credibility of the company offering the bond and past record of the company.
7.75% RBI bonds
Bonds as issued by the Reserve Bank Of India (RBI). The rate of interest offered is 7.75 per cent, payable half yearly with cumulative and non-cumulative option available. Tenure is six years.
Advantage: Safety, guaranteed return.
Disadvantage: Interest is taxable.
Retail investors have not tapped this investment avenue as much as others. It is good for investors looking for reasonable returns with no risk of default as the securities the Government offers these securities. These securities can be held in a demat format. The market is limited so liquidity can be a problem. Investors need to have a thorough knowledge of this investment format to invest in them. Well, then if you are the one who prefer the comforts of safety to the greed of high returns all the above debt instruments are yours to invest in.