Fixed Income

When someone borrows money, one has to return the principal borrowed to the lender in the future. There could also be some interest payable on the amount borrowed.

There are various forms of borrowing, some of which are through marketable instruments like Bonds and Debentures.

There are many issuers of such papers, e.g., Companies, Union Government, State Governments, Municipal Corporations, Banks, Financial institutions, Public sector enterprises, etc.

Many bonds pay regular interest; thus, the investors can expect current income. At the same time, if someone has invested at the time of issuance of the bond and hold the same till maturity, in almost all cases, there would be no capital gains. On the other hand, a transaction through secondary market – whether at the time of buying or at the time of selling, or both – may result into capital gains or losses.

Bonds are generally considered to be safer than equity. However, these are not totally free from risks.

Bonds can be classified into subcategories on the basis of issuer type i.e., issued by the Government or Corporates or On the basis of the maturity date: Short Term Bonds (ideal for liquidity needs), Medium Term Bonds, and Long-term Bonds (income generation needs).