What are Bonds:
In India, bonds are issued by the Government as well as the private-sector entities, to raise money for a specific purpose. They are essentially interest-bearing debt certificates. Bonds are like a loan which carries an interest rate and must be repaid on a specified date. Government and large corporations issue bonds when their funding requirement cannot be met from any other source. Bonds have a specified maturity period upon completion of which the borrower (Government or Private Corporation) will return the money to the lender. The money will be returned along with interest, specified at the time of issue, and specified intervals.
Taxable/Taxfree
Bonds
54EC, Capital gains and Infra Bonds
Corporate
Bonds
AAA/AA rated bonds issued by corporates
Government & Sovereign Bonds
Bonds (HDFC Floating Rate), Sovereign Gold Bonds
Perpetual & Secondary market Bonds
Bonds with perpetual tenor, secondary market offerings
Markets:
The Indian bond market comprises of various types of bonds as mentioned above. The market can be divided into two categories.
• Primary Market
In the primary bond market, the entity that needs to borrow money invites the general public or investment banks to purchase their bonds. The bonds are issued for a fixed tenure at a pre-specified interest rate.
• Secondary Market
In the secondary market, the investors who had purchased the bond previously, sell their bonds to other investors. Various brokers operate in the secondary market who facilitate these transactions.