In this article, we will cover corporate Bonds VS Government bonds in detail. But before understanding the major difference between both of them. Firstly, let’s take a close look at both types of bonds.
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Corporate Bonds are the debt securities issued by corporate houses such as private or public corporations. In order to raise money for varied purposes such as setting up a new plant, purchasing equipment, or expanding the business. When an investor buys a corporate bond, means you’re lending money to the issuer of the money in exchange for interest at specified intervals with the principal of maturity date. However, it doesn’t give any ownership rights to investors, unlike equity stocks.
As the name suggests, these bonds are issued by the Government of India i.e. Central or State Government. When government faces a liquidity crisis then issues such bonds to meet the purpose of infrastructure development. These bonds are primarily for long-term investment. The interest rate on a government bond is a coupon rate that can be either fixed or floating on a bi-annual basis. In addition, these bonds are considered the safest form of investment as there are very minimal chances that the government defaults on payment of interest or principal.
Corporate Bonds vs Government Bonds
|Corporate Bonds||Government Bonds|
|Corporate bonds are issued by corporate houses such as public and private companies to meet the varied business need.||Government bonds are issued by central or state governments to meet the requirement of infrastructure development.|
|Interest gets paid on corporate bonds generally when you exit the bond or until its maturity.||The government pays interest semi-annually on the face value of the bond.|
|Corporate bonds are a little risk in nature as they contain market risk, credit risk, and interest rate risk.||Government bonds are the safest investment option as carrying sovereign guarantees with them.|
|Well, the returns will be high if you invest in corporate bonds as there is huge potential to grow.||In comparison to corporate bonds, government bonds yield fewer returns as the risk was low in these instruments.|
|Tenure of the corporate bonds ranges between 1 to 4 years.||Government bonds are generally issued for 5 to 40 years. Such long tenure loses its relevancy over time.|
In order to diversify your portfolio, one must have a combination of debt instruments in their kitty. If investors are looking for decent recent, then corporate bonds are not bad bets. They offer better returns in comparison to government bonds over a short term of 3 years. Therefore, it’s proving better tax-efficient instruments as the gains will tax as per income tax slab. In addition, the interest rate fluctuation will be quite less as the tenure you choose was short-term.
On the other hand, government bonds are for the long investment horizon of 5-40 years. Thus, the returns you get lose relevancy over time as those are not inflation-beating returns. Government bonds are suitable for those who hardly have any risk appetite and are ready to block their money for a long tenure.
The best way to invest in these bonds is through debt mutual funds to avoid losses. As the Indian Debt Market is not liquid so must remain away from direct investment in these bonds.
Top Bonds List
Here is the list of Top and best performing Corporate and Government Bonds:
|Corporate Bond List||Government Bond List|
|Indiabulls Housing Finance Limited||REC 54EC Bond|
|Muthoot Finance Limited||NHAI 54EC Bond|
|Shriram Transport Finance Co. Ltd||INDIAN OIL CORPORATION LIMITED Bonds|
|Piramal Capital & Housing Ltd||PNB Housing Finance Limited|
|Aditya Birla Finance Ltd||UP Power Corporation Ltd|
The above list of best performing bonds in the Corporate and Government bond Category. However, this is not a recommendation but solely selected on the basis of their credit rating, returns, and safety.
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