How to Invest in Indian Bonds? What are Bonds? Types of Bonds? 2023

Invest in Bonds in India


Bonds are fixed-income investments via which an entity or the Government raises the amount.
In easy terms, a bond is a formal contract to repay the borrowed amount with an interest at fixed intervals.
When you buy any type of bond,
You are lending the amount to the issuer which may be an organization, the government, or any other entity.
Bonds and company stocks are both parts of capital market securities.
Although, the main dissimilarity is that stockholders have an equity stake in the organization,
while the bondholder has a creditor stake in the organization.
If you are looking for investment options with a steady income
and relatively lower risk, bonds can be a nice alternative to consider.
To understand more about bonds,
Let us deeply discuss different types of bonds in 2023 and How to Invest in Bonds in India.

Bonds Types 2023 in India


There are main types of bonds:

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Zero-Coupon Bonds


Zero-Coupon Bond, also called a discount bond,
is bought at a discounted price and does not pay any coupons or periodic interests to the holders.
therefore, this bond will not advantage investors with the requirement of regular cash.

This bond is an ideal option for those who always prefer long-term investment and earn in a lump sum.
The purpose behind, this is the assurance of a fixed return,
provided the investment has been kept till maturity.

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Capital Gains Bonds(54EC Bonds)


Capital gain bonds are one of the perfect options to save long-term capital gains tax arising out of the sale or transfer of long-term capital assets (land/ building).
That means, this bond offers you tax exemption from Capital Gains Tax under Section 54EC of the IT Act, 1961, for up to 6 months from the sale of the asset sold.

Bonds eligible u/s 54 EC of the IT Act, 1961 are issued by

  • NHAI (National Highways Authority of India).
  • RECL (Rural Electrification Corporation Ltd).

Read Capital Gain Bonds | Interest Rate | NHAI | REC | PFCL | IRFC | How to Buy Online? |

Bonds for Capital Gain

Minimum & Maximum20,000/-

50 Lakhs in a Financial Year.

50 Lakhs in a Financial Year.
Interest rate5.75% per annum5.75% per annum
RatingAAA / Stable (CRISIL).AAA / Stable (CRISIL).
TDSInterest earned from RECL is taxable.
However, no TDS is deducted on interest.
Interest earned from NHAI is taxable.
However, no TDS is deducted on interest.
Tax BenefitSection 54EC of the IT Act, 1961.Section 54EC of the IT Act, 1961.
Tenor5 Years.5 Years.

Corporate Bonds


These are bonds issued by various corporations for their financing needs. This Bond fund has to invest at least 80% of its entire assets in AA+ and above-rated corporate bonds as per the SEBI guidelines.

The bondholder earns regular interest income. And the principal amount at maturity.
This bond pays higher interest than Bank FD’s and Government bonds. However, the risk is also high.

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How to Invest in Bonds in India

Government of India Bond


Government of India Bonds is tax-savings bonds issued by the GOI by the RBI.
This bond is safe and offers an attractive investment alternative.
The RBI will pay you a fixed rate of interest if you invest in these bonds.

These bonds are also known as the 7.75% Savings (Taxable) Bonds, 2018 or RBI Bonds.

Read RBI Bonds: Should You Buy the RBI Bonds?

Inflation Indexed Bonds(IIBs)


Inflation-linked bonds are objective to provide security of capital and protection against inflation.
It was launched by the RBI with the reason to wean away investors from physical gold.

The inflation component of the principal will not be paid with interest.
However, the same would be adjusted in the principal by multiplying the principal with the index ratio.

During the time of redemption, the adjusted principal or the face, whichever is higher, would be paid.
The rate of interest will be protected against inflation by paying a fixed coupon rate on the principal adjusted against inflation.

Sovereign Gold Bonds(SGBs)


SGBs are securities issued by RBI on behalf of GOI.
This scheme was first launched in 2015 under the Gold Monetization Scheme.
Under this scheme, you can earn an assured interest rate apart from the current gold rate at the time of redemption thus eliminating the risk of holding physical gold.

Read Sovereign Gold Bond : Best Returns on Gold Investment | 2020-21 Dates

Convertible Bonds


Convertible bonds, meaning hybrid corporate debt security that comes with both debt and equity components.
Investors receive interest periodically while having a finger in the vein of a stock price increase.

Unlike regular bonds that are redeemed upon maturity.
This bond allows the holder to convert their bonds into a predetermined number of stocks.
After conversion, the bondholder becomes a shareholder and gets all the rights and advantages that come with it.

Government Securities(G-Secs)


A Government Security bond is a tradable instrument issued by the Central or State Governments.
This bond with a maturity of less than 1 year is known as T-Bills (Treasury bills).
If greater than 1 year are known as Bonds.
G-Secs are guaranteed by Govt. of India.

How to Invest in Bonds in India?


The organization makes it easy and hassle-free to invest in bonds.
To apply offline, You can download the application form, and submit it to the nearest branch.
To apply online, log in to an organization’s website and invest.

How to Invest in Bonds Online?

Zero-Coupon BondsHDFC securities
Government of India BondICICI Direct
Inflation-Linked BondsNA
Convertible BondsNA
Government SecuritiesICICI Direct
HDFC securities
Sovereign Gold BondsZerodha
ICICI Direct

HDFC securities

Read How to Buy Capital Gain Bonds Online & Offline?


BondsDownload form
Zero-Coupon BondsVisit the nearby bank branch
Government of India BondSBI
HDFC securities
ICICI Direct
Inflation-Linked BondsSBI
HDFC securities
ICICI Direct
Convertible BondsVisit the nearby bank branch
Government SecuritiesVisit the nearby bank branch
Sovereign Gold BondsSBI
Any Banks

How to Invest in Best Corporate Bonds in India?


You can expect to earn good returns than what a bank FD can fetch.
The risk of incurring a loss in these funds is low. However,
Corporate Bonds do not guarantee returns or the safety of capital like an FD.

Here is the list of top-performing bonds in terms of returns and safety.

Fund Name3 year5 year7 year10 year
L&T Triple Ace Fund10.08%8.83%8.73%8.15%
HDFC Fund9.37%9.11%9.28%9.17%
ABSL Fund9.39%9.02%9.26%9.33%
Kotak Fund8.88%8.61%8.99%8.76%
Invesco India Fund8.07%8.12%7.93%8.08%
Source – Value Research

Source – ICICI Direct, HDFC securities, and SBI

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