Question 1

What are bonds and how do they work?

Accepted Answer

Bonds are debt instruments where you lend money to an entity (government or corporation) for a fixed period. In return, you receive periodic interest payments (called coupons) and get your principal back at maturity. Think of it as giving a loan to the government or a company and earning interest on it.

Question 2

Why should I invest in bonds instead of keeping money in FDs?

Accepted Answer

Bonds often offer higher returns than fixed deposits, especially for higher tax bracket investors. Listed bonds held for over 12 months attract only 12.5% LTCG tax, while FD interest is taxed at your slab rate (up to 30%). Additionally, bonds provide portfolio diversification and can offer tax-free income in certain cases.

Question 3

How much money do I need to start investing in bonds?

Accepted Answer

You can start with as little as ₹10,000 for most bonds. Government securities (G-Secs) through RBI Retail Direct have a minimum of ₹10,000. Some corporate NCDs may have higher minimums of ₹1-5 lakhs. Treasury Bills are available from ₹25,000.

Question 4

Are bonds safer than stocks?

Accepted Answer

Generally yes, bonds are less volatile than stocks. Government bonds (G-Secs) carry virtually zero default risk as they're backed by the sovereign. However, corporate bonds carry credit risk (the company might default). All bonds carry interest rate risk - their prices can fall if interest rates rise. Bonds are typically safer but offer lower returns than equities over the long term.

Question 5

What is the difference between a bond and a debenture?

Accepted Answer

In India, the terms are often used interchangeably. Technically, a bond is typically secured by collateral, while a debenture may be unsecured. However, you'll commonly see 'NCD' (Non-Convertible Debenture) used for corporate bonds regardless of whether they're secured or unsecured. Always check the offer document to understand if the instrument is secured.

Question 6

How do I buy government bonds (G-Secs)?

Accepted Answer

You can buy G-Secs through: 1) RBI Retail Direct - Open a free account at rbiretaildirect.org.in and participate in primary auctions or buy from secondary market. 2) Your broker - Many brokers offer G-Secs on their platforms. 3) Mutual funds - Gilt funds invest in G-Secs. RBI Retail Direct is recommended for direct, commission-free investing.

Question 7

Can I sell bonds before maturity?

Accepted Answer

Yes, most bonds can be sold in the secondary market before maturity. G-Secs and SDLs are traded on NDS-OM (through RBI Retail Direct or your broker). Corporate bonds are traded on NSE and BSE. However, liquidity varies - G-Secs are highly liquid, while some corporate bonds may have limited buyers.

Question 8

What is Yield to Maturity (YTM) and why is it important?

Accepted Answer

YTM is the total expected return if you hold a bond until maturity. It accounts for the current price, coupon payments, face value, and time to maturity. YTM is the most important metric for comparing bonds because it shows your true annual return. A bond priced at a discount will have YTM higher than the coupon rate, while a premium bond will have YTM lower than the coupon.

Question 9

Should I buy bonds directly or through mutual funds?

Accepted Answer

Direct bonds give you fixed, predictable returns and no management fees. Mutual funds offer professional management, diversification, and liquidity but charge expense ratios (0.1-1%). For G-Secs, direct investing through RBI Retail Direct is often better. For corporate bonds, if you can't invest ₹10+ lakhs for diversification, a debt mutual fund might be safer.

Question 10

What happens if I miss the coupon payment date?

Accepted Answer

You don't need to do anything - coupon payments are automatically credited to your registered bank account on the payment date. For bonds held in demat, the payment goes to the bank account linked to your demat. For RBI Retail Direct, it goes to your registered bank account. There's no action required from your side.

Question 11

What is the difference between G-Secs and SDLs?

Accepted Answer

G-Secs are issued by the Central Government while SDLs (State Development Loans) are issued by State Governments. Both carry sovereign guarantee, but SDLs typically offer 20-50 basis points higher yield than G-Secs of similar maturity. SDLs may have slightly lower liquidity than G-Secs.

Question 12

Are Sovereign Gold Bonds (SGBs) a good investment?

Accepted Answer

SGBs are excellent for gold exposure as they offer: 1) 2.5% annual interest on top of gold price returns, 2) No storage or making charges, 3) Capital gains are tax-free if held to maturity (8 years), 4) Sovereign guarantee on principal. The main drawback is the 8-year lock-in (though you can sell after 5 years or trade on exchanges).

Question 13

What are 54EC bonds and who should invest in them?

Accepted Answer

54EC bonds help you save capital gains tax on property sale. If you invest your long-term capital gains (up to ₹50 lakh per financial year) in these bonds within 6 months of property sale, the gains become tax-exempt. At 20% tax rate, investing ₹50 lakh saves you ₹10 lakh in taxes. They're ideal for anyone selling property and wanting to defer/save capital gains tax.

Question 14

Should I invest in AAA-rated or lower-rated corporate bonds?

Accepted Answer

AAA-rated bonds are the safest corporate bonds with minimal default risk, but offer lower yields. Lower-rated bonds (AA, A, BBB) offer higher yields but carry higher default risk. For retail investors, sticking to AA and above is generally recommended. Only invest in lower-rated bonds if you understand credit analysis and can diversify across multiple issuers.

Question 15

What are floating rate bonds and when are they useful?

Accepted Answer

Floating rate bonds have interest rates that change periodically based on a benchmark (like repo rate or NSC rate). RBI Floating Rate Savings Bonds reset every 6 months. These are useful when you expect interest rates to rise, as your returns will increase. They protect against interest rate risk but provide less predictable income.

Question 16

How are bond returns taxed in India?

Accepted Answer

Bond taxation depends on the type: 1) Interest income: Taxed at your slab rate (up to 30%). 2) Listed bonds - capital gains after 12 months: 12.5% LTCG (no indexation from April 2024). 3) Unlisted bonds - capital gains after 36 months: 12.5% LTCG. 4) Tax-free bonds: Interest is completely tax-free. 5) SGBs: Capital gains tax-free if held to maturity.

Question 17

What is the tax advantage of listed bonds over FDs?

Accepted Answer

For someone in the 30% tax bracket: FD interest is taxed at 30%, so a 7% FD gives only 4.9% post-tax. A listed bond with 8% yield held over 12 months pays only 12.5% LTCG on gains, potentially giving 7%+ post-tax returns. The exact benefit depends on purchase price, sale price, and holding period.

Question 18

Is TDS deducted on bond interest?

Accepted Answer

Yes, TDS of 10% is deducted on interest exceeding ₹5,000 per financial year for most bonds. For G-Secs held through RBI Retail Direct, no TDS is deducted - you self-report the interest in your ITR. You can submit Form 15G/15H if your total income is below taxable limits to avoid TDS.

Question 19

Can I claim indexation benefit on bonds?

Accepted Answer

No, from April 2024, indexation benefit has been removed for all debt instruments including bonds. Long-term capital gains on listed bonds (held over 12 months) are now taxed at a flat 12.5% without indexation. For unlisted bonds, the holding period for LTCG is 36 months, also at 12.5%.

Question 20

How are tax-free bonds different from regular bonds?

Accepted Answer

Tax-free bonds offer interest that is completely exempt from income tax. They were issued by government-backed entities like NHAI, IRFC, PFC, REC between 2012-2016. While they offer lower coupon rates (5.5-6.5%), the tax-free nature makes them attractive for high tax bracket investors. New tax-free bonds are rarely issued now, but you can buy them in the secondary market.

Question 21

What are the main risks of investing in bonds?

Accepted Answer

Key bond risks: 1) Interest Rate Risk: Bond prices fall when rates rise. 2) Credit Risk: The issuer may default (corporate bonds). 3) Liquidity Risk: May be hard to sell some bonds quickly. 4) Inflation Risk: Fixed returns may lose purchasing power. 5) Reinvestment Risk: Coupons may need to be reinvested at lower rates. G-Secs eliminate credit risk but still carry interest rate risk.

Question 22

What happens if a company defaults on its bonds?

Accepted Answer

If a company defaults, it typically enters a resolution process under IBC (Insolvency and Bankruptcy Code). Secured bondholders have priority in recovery and may receive a portion of their investment back. Unsecured bondholders have lower priority. Recovery can take 1-3 years and investors may lose 20-70% of their investment depending on the case.

Question 23

How do I assess the credit risk of a bond?

Accepted Answer

Look at: 1) Credit rating from CRISIL, ICRA, CARE, or India Ratings (AAA is highest, D is default). 2) Rating trend - is it being upgraded or downgraded? 3) Issuer's financial statements - debt levels, profitability, cash flows. 4) Industry outlook. For retail investors, sticking to AA and above rated bonds is safer. Never invest more than 5% in any single issuer.

Question 24

What is duration and why does it matter?

Accepted Answer

Duration measures a bond's sensitivity to interest rate changes. A duration of 5 years means if interest rates rise by 1%, the bond price will fall approximately 5%. Longer duration = higher risk but potentially higher returns. If you expect rates to fall, buy higher duration. If rates might rise, stick to lower duration bonds.

Question 25

Are government bonds 100% safe?

Accepted Answer

G-Secs have zero default risk as they're backed by the Government of India (sovereign guarantee). However, they still carry interest rate risk - if you need to sell before maturity and rates have risen, you'll sell at a loss. If held to maturity, you're guaranteed to get your principal and all coupons. For pure safety with no rate risk, consider Treasury Bills or short-term G-Secs.

Question 26

Is Bond Sahi Hai free to use?

Accepted Answer

Yes, Bond Sahi Hai is completely free. All our educational content, calculators, and tools are available at no cost. We believe financial education should be accessible to everyone.

Question 27

Does Bond Sahi Hai sell bonds or provide investment advice?

Accepted Answer

No, Bond Sahi Hai is purely an educational platform. We do not sell any financial products, manage investments, or provide personalized investment advice. Our content is for educational purposes only. For investment decisions, please consult a SEBI-registered investment advisor.

Question 28

How accurate is the information on Bond Sahi Hai?

Accepted Answer

We strive to keep all information accurate and up-to-date, especially regarding tax rules and regulations. However, tax laws and financial regulations change frequently. Always verify current rules from official sources (Income Tax Department, SEBI, RBI) or consult a professional before making investment decisions.

Question 29

How do I track my learning progress?

Accepted Answer

Your learning progress is automatically saved in your browser's local storage. As you complete chapters and modules, your progress is tracked. You can see your overall progress on the Learn page and resume from where you left off. Note that progress is device-specific - if you switch devices, you'll start fresh.

Question 30

Can I suggest topics or report errors?

Accepted Answer

We welcome feedback! If you find any errors in our content or have suggestions for new topics, please reach out to us. We regularly update our content based on user feedback and changes in regulations.

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