BONDS

 

WHAT IS A BOND?

A Bond = A loan given by an investor to a company or government.

👉 You invest money → Issuer pays interest (coupon) → Returns principal at maturity

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🧩 TYPES OF BONDS (BRIEF EXPLANATION)

🏛️ 1. GOVERNMENT BONDS

• Issued by Government of India
• Low risk, stable return

🏢 2. CORPORATE BONDS

• Issued by companies
• Higher return than government bonds

🌆 3. MUNICIPAL BONDS

• Issued by local authorities
• Used for infrastructure projects

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🏭 KEY TYPES OF CORPORATE BONDS

🔄 Convertible Bonds

• Can convert into company shares
• Lower interest rate
  👉 Good for growth investors

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📞 Callable Bonds

• Company can repay early
  👉 Risk: Investor loses future interest

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🧾 Zero-Coupon Bonds

• No interest payment
• Buy at discount, get full value later

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📊 Fixed-Rate Bonds

• Same interest rate throughout
  👉 Stable income

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📉 Floating Rate Bonds

• Interest changes with market rate
  👉 Protects from inflation

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🔙 Puttable Bonds

• Investor can sell back early
  👉 Safer for investors

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🏦 Secured / Mortgage Bonds

• Backed by assets
  👉 Lower risk

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⚠️ Debentures

• Unsecured (no asset backing)
  👉 Based on company trust

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🔥 High-Yield (Junk) Bonds

• Low credit rating
• High interest
  👉 High risk + high return

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📊 COMMON FEATURES OF CORPORATE BONDS

📌 Credit Rating

• Given by agencies
• Investment Grade (safe)
• Junk (risky)

👉 Regulated under Securities and Exchange Board of India

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⏳ Maturity Period

• Short-term (1–3 years)
• Medium (3–10 years)
• Long-term (10+ years)

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💵 Income Type

• Coupon income (interest)
• Capital gain (price increase)

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⚙️ HOW BONDS WORK (SIMPLE)

1. Investor buys bond
2. Company receives money
3. Pays interest periodically
4. Returns principal at maturity

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🧮 BOND RETURN FORMULA

$\text{Bond Yield} = \frac{\text{Annual Interest}}{\text{Market Price}} \times 100$

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⚖️ ADVANTAGES & DISADVANTAGES

✅ Advantages

• Fixed income
• Lower risk (government bonds)
• Predictable returns

❌ Disadvantages

• Lower return than stocks
• Interest rate risk
• Credit risk (default)

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🏛️ IMPORTANT LAWS & SECTIONS (INDIA)

📜 1. Companies Act, 2013

• Governs corporate bond issuance
• Rules for debentures

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📊 2. SEBI Regulations

• Issuance & listing rules
• Investor protection

👉 Controlled by Securities and Exchange Board of India

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🏦 3. RBI Guidelines

• Government bonds regulation
  👉 Managed by Reserve Bank of India

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📑 4. Securities Contracts Regulation Act, 1956

• Trading rules for bonds

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💼 5. Income Tax Act, 1961

• Tax on interest income
• Capital gains tax on bonds

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⚠️ LEGAL COMPLIANCE FOR BONDS

• Credit rating mandatory
• Prospectus disclosure
• SEBI approval
• Listing on exchange (optional)

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📉 RISKS IN BONDS

• Default risk
• Interest rate risk
• Inflation risk

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🌍 TYPES BASED ON MARKET

• Domestic bonds
• Foreign bonds
• Eurobonds

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💰 TAXATION ON BONDS

• Interest → Taxed as income
• Capital gains → Taxed separately
  
  
  

📊 BONDS vs STOCKS – BASIC DIFFERENCE

Feature	Bonds	Stocks
Meaning	Loan to company/government	Ownership in company
Income	Fixed interest	Dividends + price growth
Risk	Low to medium	High
Return	Stable, fixed	High but uncertain
Control	No ownership	Ownership + voting rights