Bonds are debt instruments in which an investor lends funds to the borrowing company or government at a fixed or variable interest rate for a specified period of time. These are a type of fixed income investments that focus on safety and liquidity. These bonds also help diversify an investor’s portfolio, as monetary experts suggest that it is unwise to put all your eggs in one basket, namely equities. When the stock market is volatile, most investors start shifting their funds from stocks to the debt market.
There are basically two types of bonds: Government bonds and Corporate bonds. Now the real question is: Which is better for investors in the long run? Experts say that both have their own advantages and disadvantages.
Government bonds among the safest investments in India
Government bonds offer investors a relatively safe and reliable investment alternative. These bonds are among the safest investments in India as they are guaranteed by the Indian government.
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Some government bonds
According to Abhijit Roy, CEO of GoldenPi government, in the Indian bond market, bonds are important pieces of equipment that the government uses to raise money.
“They are almost completely risk-free, which attracts risk-averse investors including banks, financial institutions and private individuals, and they typically have fixed or variable interest rates, typically yielding between 5% and 6% for 10-year bonds. The return is around 7%. Abhijit Roy said G-Sec yields have an impact on interest rates in the economy, affecting everything from corporate bonds to bank loan rates.
Corporate bonds provide better returns
Corporate bonds are debt instruments issued by businesses to raise money. Investors can expect certain and predictable interest income from corporate bonds. The interest rate, also called the coupon rate, is determined at the time of issuance and remains the same throughout the life of the bond.
“Investors are likely to realize greater returns because the yield on corporate government bonds is generally higher than bonds or bank deposits. Yields on corporate bonds can range from 8% to 12% or more depending on the issuer, credit rating of the bond, duration and market conditions, among other variables,” said Abhijit Roy.
What should investors choose? Corporate or government bonds?
Depending on their financial goals and risk tolerance, investors can choose between corporate bonds, which can offer higher returns but more risk, and government bonds, which provide safety and high liquidity. Roy suggested that risk and return in a bond portfolio could be balanced through diversification between the two.
Disclaimer: The opinions and recommendations expressed above are those of individual analysts and not Mint. We advise investors to consult certified experts before making any investment decisions.
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