Bonds are financial instruments included in the debt asset class and are issued by governments or private organisations to raise funds from the general public. Governments and private organisations raise funds to ensure adequate capital for undertaking various activities.
The bond agreement between the issuer and the investor comes with the details of interest rate, terms of payment (debt servicing), maturity etc., and are listed with a face value (principal) that is repaid at the time of maturity.
The interest rate of bonds is called the coupon rate, and the interest payouts are predefined as per the agreement. Bonds are traded in the secondary markets and can be bought and sold similar to other investment instruments.
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Bonds’ fixed income market can provide you returns as high as 9 – 10% per annum or more. Investments in Bonds and Debentures are more rewarding and reliable mode of growing your money than the existing options of fixed deposits and mutual funds.
Safe investments like bonds and debentures, help you to stabilise your portfolio and helps you to hedge your risk against other investments.
The Coupon or Coupon rate is the interest rate paid by fixed-interest security such as Bond/ Debenture. It is the annual payment towards the face value of a bond. This interest will be credited to the your accounts at set predefined frequency
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For interest earned from Taxable Bonds, the earnings are taxable. However, for interests earned from Tax-Free Bonds, the earnings are 100% tax-free. Also, capital gains earned from selling any Bond (taxable and tax-free) before maturity are subject to capital gains taxation rules.
Bonds and debentures are debt investment instruments with a Fixed Rate of Return and Fixed Maturity Period. While Bonds are securities that are mostly issued by the government, debentures are always issued by corporations.
Bonds and Debentures are issued by these entities to raise money from investors as loans used to fulfill business objectives like entering new markets, starting a new project, or scaling existing businesses. For every bond/debenture issue, fixed interest payments (Coupons) are made regularly on pre-specified dates. The principal loan amount(face value per unit of Bond/ Debenture) is paid back on the pre-specified maturity date.
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Face Value: It is the value of the bond when it is first issued by the company. However, after the bond starts to trade in the secondary market, the face value changes to trade either at a discount or premium from the actual face value.
Coupon Rate: It is the actual rate of interest attached to the bonds and determines how much interest the issuer will provide to the holders of the bonds regularly. For example, if a 10-year bond with a face value of Rs 10, 000 has a coupon rate of 5%, it will provide Rs 500 as interest payments.
Credit Quality: Every bond comes with a credit rating provided by various credit rating agencies. The rating is based on the financial condition of the issuer and whether it has enough money to fulfil the payment promises. The higher the credit rating, the safer the bond investment
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Although governments and private organisations can raise funds through disinvestment or public issues such as IPOs, the issues can not provide a steady stream of capital. Hence, government and private organisations issue bonds to ensure they raise adequate capital.
Bonds work similar to other debt instruments and come with the obligation on the issuer’s part to provide regular interest payments to the holder and the repayment of principal at the time of maturity. After completing the bond investment, the issuer pays interest to the holders of the bonds based on the coupon specified at the time of the bond issuance.
Once they are issued and start trading in the bond market, investors can either hold them until maturity to realise all possible interest payments or can sell them to other investors to make profits based on the difference between the prevailing bond price and the face value. However, if the bonds are sold to a new buyer, the issuer is liable to pay interest to the new buyer at the time interest is due.
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Through ETFs: You can invest in bond ETFs that are listed on various stock exchanges and invest the money across various types of bonds such as corporate, government etc.
Bonds, like every market-linked instrument, also carry a level of risk. However, you can further mitigate the risk level attached to bonds investments by considering the following factors before investing in bonds in India:
Prospectus: Before you invest in a specific bond, it is critical to read and analyse the prospectus in detail. Every issuer is mandated to file a prospectus that includes everything you need to know, such as face value, tenure, coupon rate etc. You should read the prospectus to ensure the investment is ideal.
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Credit Rating: Before investing, make sure that the credit rating is equal to or above AA to ensure the negligible risk of default. Consider the financials of the company to ensure its cash flow is positive.
Price Risk: Price risk is the sensitivity of the bond price to changes in the interest rates in the market. Analyse the price risk associated with the bond to understand how much the bond price can fluctuate if the interest rates change in the future.
Stockbroker: Stockbroker plays an important role in easing the bonds investments and provides a link between the investor and the bonds market. As you will be opening a Demat and trading account with the stockbroker to invest in bonds, choosing an ideal stockbroker is important.
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Types: There are numerous types of bonds, such as government bonds, corporate bonds, zero-coupon bonds, floating-rate bonds, convertible bonds etc. The bonds you choose should complement your financial goals and should be at par with your risk profile. You can consult an investment advisor to choose the ideal bond type before investing.Diversifying your investments isn't just about wisely balancing your portfolio between stocks and bonds. Alternative assets such as fine art might have a place in your portfolio as well.
Art collecting and investment is no longer limited to the wealthy elite. If you’re interested in art, then you can diversify your assets and even find something nice to hang on the wall. At the very least, your investment will look a heck of a lot better than a stock certificate.
The art market is not highly correlated with the stock or bond markets. That's exactly what investors should be looking for when diversifying their assets. No matter what the financial markets are doing -- moving up or trending down -- the art market isn't affected very much. While both stocks and bonds were declining in the first half of 2022, art auctions were setting new record prices.
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In 2020, the art market faced a challenging environment when in-person auctions were canceled due to the COVID-19 pandemic. Turnover in contemporary art fell 34%, and many auctions and galleries shifted online, which helped things bounce back. Turnover and transactions reached a new all-time high, and more artworks were sold than ever before.
As we face the highest inflation rates we’ve seen in 40 years, art can serve as a good hedge against inflation. People with a lot of cash on hand are looking to buy hard assets such as art or real estate to protect their wealth. As a result, we’ve seen strong increases in auction values during recent high inflation.
The trend bodes well for the future of art as an investment. Still, investors should be wary of being enticed by the high returns they could theoretically earn by investing in fine art.
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It's possible to generate positive returns from investing in art by being selective, diversifying your collection, and holding pieces for the long term. Art investors should expect returns more comparable to those of bonds and not the market-beating returns touted by the art indices.
When you invest in a piece of art, you're buying it with the expectation that demand for that piece or similar pieces will increase faster than the supply. If that happens, then the value of the piece will increase, and you may be able to sell it for a profit.
Various other costs to consider with the purchase and sale of artwork include sales tax, transportation expenses, authentication and appraisal fees, and insurance. You may also want to buy a nice frame or another type of display mechanism for your artwork.
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You can easily find art to purchase at galleries and auction houses (both physical and online). You might also check out local art fairs. Online magazines and social media channels such as Instagram can help you discover artists you like, and you can buy works directly from artists’ websites. Or you might dive into the world of NFTs, which represent ownership of digital art.
Importantly, if you're going to buy individual works of art, you probably want to buy works that make you happy. If you invest $10, 000 in a painting that you think is ugly just because you expect its value to rise, then you're missing out on the fun part of investing in art versus other asset classes.
If you don't want the hassle of owning a piece of art,
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