how to buy bonds online what thing we should keep in mind before investing in bonds.how to be good investor in bonds and explain lot of bonds term in this blog.
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As we know, bonds are loans made to the government and corporate entities by an investor to fund their upcoming projects or ongoing operations. In exchange, the investor gets timely interest payments and the amount of face value at maturity.
Before moving onto our topic, how to buy bonds online, we should know why you should invest in bonds, and what to consider before investing in bonds.
Why You Should Invest in Bonds?
Unlike fluctuating dividends or stock prices, bonds can give you regular interest payments at regular intervals. This makes bonds more stable and provides predictable income.
Bonds can help with diversifying your portfolio because they are less volatile than equity, making them less risky. Some bonds come with many tax advantages—like municipal bonds or tax-free bonds issued by PSUs—which offer tax exemption. This type of bond attracts high-income or tax-conscious investors.
One of the major benefits of investing in bonds is that they come with credit ratings from agencies like ICRA, CRISIL, and S&P. This allows investors to understand risk and helps in making wise decisions.
Consider These Things Before Investing
Credit Rating:Yield to Maturity (YTM):
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Before investing in bonds, always check the issuer’s credit rating (e.g., AAA, BBB). Triple-A is the highest rating and makes it safest for the investor. The higher the rating of a bond, the lower the risk of default—and vice versa.
Liquidity:
Liquidity means the ability to convert an asset into cash at its fair price in a short duration. In the case of bonds, we have to check how easily we can sell the bond in the secondary market before maturity. Usually, it’s challenging to find a buyer in this type of market.
Yield to Maturity (YTM):
Yield to maturity represents the total return anticipated on a bond till its maturity, considering market price, coupon, interest rate, face value, and time.
Here is the formula of YTM:
YTM ≈ [C + (FV – PV) / n] / [(FV + PV)
Tenure:
Long-term bonds usually offer higher returns to compensate for uncertainty. Tenure means the time or length until the principal is repaid. Always look at the maturity date and plan your investment accordingly.
Ways to Invest in Bonds
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Online Platforms
We can buy bonds on online platforms like Jiraff, BondsIndia.com, GoldenPi, etc. These platforms have made investing in bonds much easier.
a. KYC:
To open an account on such platforms, you have to go through the KYC process. It involves verification of PAN, Aadhaar, bank account details, demat account details, and identity confirmation.
b. Low Investment:
You can start investing in bonds from as low as ₹1,000. Government bonds in India start from ₹1,000, while corporate bonds can range up to ₹1,00,000.
Direct Purchase
You can buy bonds directly through brokers or from the government. Government bonds are listed on official websites like India’s RBI Retail Direct. In the U.S., bonds are available at TreasuryDirect, and in the UK through UK Debt Management Office.
You can also purchase some bonds via full-service or discount brokerage channels. This gives you control over specific bond selection.
Bond Funds (ETFs and Mutual Funds)
ETFs and mutual funds are one of the simplest ways to invest in bonds. You don’t have to do research to find the best bond—mutual fund managers do that for you. These managers are specialists in this field and are highly skilled professionals.
You can also review the manager’s past performance before investing.
You can buy bonds in the secondary market, where investors sell their bonds instead of purchasing them directly from the issuer.
Avoid These Mistakes
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Sometimes investors chase higher returns and ignore the credit rating of the bond.
Always diversify your portfolio by investing in different asset classes.
Read all information carefully while investing—especially the coupon rate and maturity date.
Don’t sell your bond too soon, as it can ruin your gains.
Don’t rely on tips offered on Telegram or any similar platform.
Take advice only from experts like CFA or CFP, who are authorized to give investment advice to clients.
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