BONDS

"Know what you own, and why you own it."

-Peter lynch

Bonds are securities that represent a loan to a company or the government with the expectation that the loan will be paid back at a set date in the future. Like almost all loans bonds come with interest which involves either periodic payments over the life of the bond or a single payment when the bond matures.

Bonds can be bought directly from the corporation or the government. They can also be bought from bond traders, brokers, and dealers in the secondary market.

The significant component of the bond picture is the interest. Companies and governments that issue bonds agree to pay the buyer at a specific rate of interest. In India, bonds are issued in the multiples of ₹1,000.

A bond's maturity is one of the principal considerations an investor weighs against their investment goals. Maturity is often classified in three ways:

• Short-term: Bonds that fall into this category tend to mature within one to three years.

• Medium-term: Maturity dates for these types of bonds are normally over ten years

• Long-term: These bonds generally mature over longer periods.

Why buy bonds?

Including bonds in your portfolio is a good idea, particularly for investors with a lower tolerance for risk. Bonds offer a variety of benefits. Two of their main benefits are :

• Bonds can help stabilize a portfolio by neutralizing the investor's exposure to the volatility of the stock market. Bonds usually tend to go up when the stock market is bad.

• Bonds generally provide a scheduled stream of interest payments. This helps people to meet financial goals such as college funds or retirement funds.

Another advantage of bonds is that certain bonds provide unique tax benefits. But bonds have risks too for example:

• Credit risk

• Interest rate risk

Bonds are great investments as they are good to hedge against the stock market and protect yourself from future downfalls. They also play a very important role while diversification of portfolios. While bonds don't function as a complete substitute to stocks, they do make a strong complement, in addition to providing steady interest income.