Government Securities
Government Securities are considered the gold standard when it comes to investment safety. They enjoy a sovereign status.
Although never promising very high returns, G-Secs usually give an added advantage of 2-3% over FDs.
When you invest in G-Secs, you not only give yourself a safe option with predictable growth - you also invest in the development of the country.
G-Secs are issued to fund various government expenditures ranging from development of roads, highways, power generation to strengthening our army & public services.
When State Governments issue bonds, they are called SDLs or State Development Loans.
Some other bonds can also be technically classified under G-Secs - like SGBs & Tax-free bonds.
Feature
- Sovereign Safety
- Government Backed
- High Safety With Moderate Returns
- Contributes Towards Development Of The Nation
Sovereign Gold Bonds
SGBs are one of most profitable ways to invest in ‘digital’ Gold. Issued by RBI, they too enjoy a sovereign status, and are issued in denominations of 1 gram of Gold.
While the price of Gold determines the value of the unit held by you, these bonds give you an additional return of 2.5% per annum.
The tenure for SGBs is 8 years, but they can be traded in the market in case you want to purchase the bond with a shorter term to maturity, or to sell your ‘digital’ Gold before maturity. With extremely high safety and a track record of giving an average of 10% annual returns for the past 15 years SGBs are a smart and convenient way to invest in Gold.
Feature
- Gold In Digital Form
- 2.5% Advantage Over Other Digital Gold Investments
- Easy To Keep Safe, Store And Transfer
- Can Be Sold In The Secondary Market Before Maturity
PSU Bonds
PSU Bonds are issued by Government Sector Companies and Undertakings that the Central or the State Government has 51% or more stake in.
Considered second only to sovereign bonds in terms of safety, PSU bonds find great appeal amongst safety conscious investors who want more from their money.
There are different types of PSU bonds, including fixed-rate bonds, floating-rate bonds, inflation-indexed bonds, zero-coupon bonds, etc… with terms and conditions that suit various investment requirements.
The typical tenure for PSU bonds is set between 5 to 10 years, therefore best suited to long-term investments. However, they can be sold easily if the investor needs liquidity.
Feature
- Second Only To Government Securities In Safety
- More Returns On Investment Than Fds
- Good For Long-Term, Risk-Averse Investors
- Wide Range Of Issuers To Choose From
NBFC Bonds
NBFC Bonds are issued by Non Banking Financial Institutions - some of the popular ones you may have heard of are L&T Finance, Shriram Transport Finance, Bajaj Finance, LIC, etc…
NBFC Bonds usually offer higher interest rate than G-Secs and have to be gauged for their safety by the investor. SEBI regulated rating agencies assign ratings where AAA is considered the safest.
NBFCs cannot raise funds like Banks, they can only do so through term-deposits - therefore Bonds become one of the primary ways in which NBFCs borrow money, often at rates more advantageous than what Banks offer them.
Feature
- Big Range Of Returns
- Best For Investors With A Wide Risk Profile
- Offers Higher Returns Than Bank FDs And Government Securities
- Great Tool For Diversifying Your Fixed-Income Portfolio
Tax-Free Bonds
As the name suggests, the interest earned from investing in these bonds is not taxable.
Due to this feature, these bonds are very attractive for HNI looking to create a safe store of wealth that keeps growing at inflation beating rates.
Typically offering returns in the 5-7% range, the tenure for these bonds is set mostly at 10, 15 or 20 years.
Feature
- Used To Save Tax
- Tax Adjusted Returns
- Highest Rating Of AAA
- Usually Issued By Psus
Bond ETFs
An ETF is a type of pooled investment security that holds multiple underlying assets rather than just one, whereas in bond ETFs the investment is exclusively in bonds.
Also, unlike mutual funds, bond ETFs can be traded on exchange directly.
Bond ETFs are relatively more liquid and cost-effective as it offers diversified bond holdings across a range of bond types.
It also pays dividends on a monthly basis based on the interest income earned on the bonds held in the fund's portfolio.
Feature
- Curated Buckets Of Bonds
- Choose Balanced Bond Investment Options
- Bond ETFs Tradable And Can Be Sold On The Exchange
- Wide Range
54-EC
54-EC Bonds are most popular for the function of compensating for long-term capital gain tax and are specifically meant for investors earning long-term capital gains and would like tax exemption on these gainss.
These bonds do not allow any tax exemption on short-term capital gains tax.
The investment in 54EC bonds ranges from 1 bond amounting to Rs. 10,000 upto 500 bonds amounting to Rs. 50 Lakhs in a financial year.
Usually, these bonds come with a lock-in period of 5 years and are non-transferable.
Feature
- Specialised Function To Save Property Tax
- Mostly Used While Selling Old Property
- No TDS On Interest Income
- Rigid 5 Year Lock-In
