Bond

Investments

A bond is a fixed-income debt instrument where the issuer (government or corporation) borrows money from investors for a specified period at a fixed or floating interest rate, promising to repay the principal at maturity. Bonds are the foundation of the debt investment universe.

In detail

When the Government of India issues a 10-year G-Sec at 7.5%, it is borrowing for 10 years, paying 7.5% annually, and returning face value at maturity. Corporate bonds work similarly but at higher rates to compensate for higher credit risk.nnBond prices and interest rates have an inverse relationship: when rates rise, existing bond prices fall. This is the primary risk in long-duration bond funds. Retail investors access bonds through RBI Retail Direct, Sovereign Gold Bonds, NSC, RBI Floating Rate Bonds, and bond mutual funds.

Formula

Current Yield = Annual coupon / Current market price x 100 Approximate YTM = [Coupon + (Face value - Price)/Years] / [(Face value + Price)/2] Example: Rs 1,000 bond at Rs 950 with Rs 75 coupon: Current yield = 7.89%

Real-life example

🇮🇳 India example

Rahul buys a 7.5% Government of India bond at face value Rs 1,000, maturity 5 years. He gets Rs 75/year and Rs 1,000 at maturity. If rates rise to 8%, the bond value drops to approximately Rs 960. If rates fall to 7%, the bond value rises to approximately Rs 1,020.

Frequently asked questions

How is a bond different from a fixed deposit? ▼
An FD is a contract with a bank -- guaranteed return, illiquid. A bond is a tradeable security you can sell before maturity in the secondary market. FDs are simpler; bonds offer liquidity but require more understanding.
What is the safest bond in India? ▼
Government of India bonds (G-Secs) have zero credit risk -- backed by the sovereign. Available through RBI Retail Direct (retaildirect.rbi.org.in) at zero commission. Only risk is interest rate fluctuation.