What is bond yield? If you are in the hunt of alternate investment avenues known to render better return than fixed deposits in different financial institutions, bonds can be an excellent choice for you. Before you proceed further it is better to get the answer to the common question – what is the meaning of bond? in the financial market.
In simple term, Bonds is a medium to raise money from investors in the market. A bond issuer in exchange of money promises to pay a fixed periodic interest at varied intervals which can be monthly, half yearly, quarterly, or yearly. A bondholder also gets paid back the principal amount also known as face value in financial term at the time of maturity. Bond interest rate is also a notable feature that make it a desirable choice.
It is thus a good option for retail investors looking for alternate of FDs in banks. There are many advantages you enjoy upon investing in types of bonds online or offline.
What is bond yield?
Yield is a vital thing to consider while shortlisting investment instruments available in the financial market. When it comes to bonds, yield is the key attraction. The yield you get can be much better than a few well-known fixed income securities. Why not understand what is bond yield first? The return that you realize against your investment in bonds is termed as bond yield.
The yield can be taxable or tax-free. You can select your options taking into consideration the essential factors. Do not ignore the things that can risk your hard-earned money. Similarly, find information about bond yield before starting transaction to buy bonds.
Higher yield is good but increases the potential of risks. It means an investor is liable for more interest payments. An investor expects higher interest in case of riskier issuers. Higher yield is also related directly to bonds with longer maturity.
What is bond duration?
Maturity in bonds can be of short term, medium term, and long term. The bond duration defines the yield. Hence, prior to choosing a bond, make sure you gather information about the bond duration as it can help you in many ways. Here, it refers to length of time. Shorter bond duration can be less risky while longer bond duration has a scope for higher returns.
What is a bond duration in actual term?
A measurement that in case of interest rates fluctuation tells us how much a bond’s price might change is termed as a bond duration. It helps to know how long it will take to repay a bond’s price back to a bondholder from the cash flows that it produces.
The Popular Bond Types
2. PSU Bonds
3. Corporate Bonds
4. Tax-Free Bonds
5. Zero-Coupon Bonds
6. Convertible Bonds
7. Sovereign Gold Bonds
8. Perpetual Bonds
9. Green Bonds
10. Covered Bonds
11. Market-Linked Debentures
Bond interest rate
A bond’s interest rate has significant importance in bonds. It is related to the current the perceived risk of the issuer and current prevailing rate of interest. An example would be a 12-year, Rs. 6,000 loan bonds with a 5 % coupon rate. If the rate of interest goes up, new bond issues might have 6 % coupon rate.
Investment in bonds comes to you with many advantages for the investors. No matter whether you are a retail investor or institutional investor, bonds can be a sound investment choice. Investment in bonds is relatively safe and secure. There is a predictable fixed income. It can help you achieve your short-term and long-term goals. Investors investing in bank fixed deposit gets a lower return compared to bonds.
Important Bond features
- Value at face
- Income from fixed interest
- Maturity – short-term bonds between 1 and 5 years, intermediate bonds between 5 and 12 years, and long-term bonds over 12 years.
- Issuer of bonds
- Ratings of credit
Bonds is thus an effective way to raise funds for a business without giving the right of ownership in the company. Bonds are an investment option unlike stocks. As an investor you get a fixed rate of interest as a fixed income on the investment made in bonds. You can buy or sell bonds through dedicated online platforms like BondsIndia.com and others along with the secondary market.
You can check Issuer details, Bond price, Yield, Maturity, Credit rating, and more also to win attractive deals on bonds and other investment options announced by different online bond platforms. Planning your investments early is the right decision. Today, there are many sources to expand your knowledge about bonds, types of bonds, and more. You will be able to browse the common terms, key terms, definition, and more that can help you make informed investment decisions. The financial experts recommend diversification of investments. You can take better and right decision by educating yourself.
