The Indian financial market is experiencing growth with a shift toward modern financial instruments such as mutual funds, equities, and bonds

A beginner’s guide to diversifying investment portfolio with bonds The Securities and Exchange Board of India (SEBI) has made bonds more accessible to retail investors by reducing the minimum face value. Platforms like Altifi help retail investors by offering easier access and transparent investment options

The Indian financial market is expanding as investors explore more ways to grow and secure their wealth. Traditional asset classes such as fixed deposits, gold, and real estate continue to hold importance, but there is a noticeable shift towards modern financial instruments such as mutual funds, equities, and bonds. Online investment platforms have played a significant role in this transformation by simplifying the investment process and promoting financial inclusion for a broader audience.

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A notable development in the bond market was the Securities and Exchange Board of India (SEBI)'s decision to reduce the minimum face value of debt securities from ₹1 lakh to ₹10,000. This change has made bonds more accessible to retail investors, providing an opportunity to participate in this market segment.

What is a bond?
A bond is a fixed-income financial instrument through which investors lend money to an issuer, such as a government or corporation, in return for periodic interest payments and the repayment of the principal amount at maturity. Bonds also offer flexible investment durations, allowing investors to choose between short-term and long-term options based on their financial preferences.

What are the different types of bonds?
1. Government Securities (G-Secs)

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These bonds are issued by the Government of India and are considered among the safest investment options due to their sovereign backing. G-Secs comprise instruments such as Treasury Bills (T-bills), Cash Management Bills (CMBs), State Development Loans (SDLs), and dated government securities.

2. Corporate Bonds
These bonds are issued by corporations to raise funds for business operations or expansion. While they offer higher returns compared to government bonds, they also come with a relatively higher level of risk, depending on the issuer's credit rating.

3. Fixed Rate Bonds
These bonds carry a predetermined coupon rate that remains constant throughout the bond's tenure, providing investors with predictable interest income.

4. Floating Rate Bonds (FRBs)
Unlike fixed-rate bonds, FRBs have variable coupon rates that are adjusted at specified intervals, typically linked to a benchmark rate. This structure allows the interest payments to align with prevailing market rates.

5. Zero-Coupon Bonds
These bonds do not offer periodic interest payments. Instead, they are issued at a discount to their face value and mature at par, with the difference representing the investor's return.

6. Inflation-Indexed Bonds (IIBs)
Designed to protect from inflation, both the principal and interest payments of IIBs are adjusted according to inflation rates, preserving the purchasing power of the returns.

7. Callable Bonds
These bonds grant the issuer the right to redeem the bond before its maturity date, typically when interest rates decline, allowing the issuer to refinance at lower rates.

8. Puttable Bonds
These provide investors with the option to sell the bond back to the issuer at predetermined dates before maturity, offering flexibility in certain market conditions.

9. Convertible Bonds
These bonds can be converted into a specified number of the issuer's equity shares, combining features of debt and equity instruments.

Why invest in bonds?

Portfolio diversification: Bonds can balance out the volatility of riskier investments, contributing to a more stable portfolio.
Predictable income stream: Regular interest payments make bonds a consistent source of income.
Capital preservation: Bonds are structured to safeguard the principal investment by ensuring its repayment in full upon maturity, thereby serving as a dependable instrument for capital preservation.
Customizable investment horizons: With varying maturities, bonds can align with both short-term and long-term financial goals.
Liquidity options: Listed bonds are traded on the secondary market, allowing investors to sell before maturity if needed.
Wide array of choices: Investors can choose from government securities, corporate bonds, floating rate bonds, and more, each catering to specific risk appetites and return expectations.

How to invest in bonds?
Investing in bonds has been simplified by platforms such as Altifi, which offer access to a curated selection of bonds from corporate and government entities. Backed by Northern Arc Capital, Altifi provides a transparent, user-friendly interface, enabling retail investors to start with a minimum investment of ₹10,000. The platform offers features such as zero commissions, a mobile-friendly interface, and real-time data to support informed decision-making.

Bonds are a vital component of the financial market, providing opportunities for stable returns and capital preservation. Platforms such as Altifi make it easier for retail investors

to explore and participate in the bond market. By offering accessible and transparent solutions, Altifi empowers individuals to diversify their portfolios with confidence.

Ready to explore bonds? Click here to get started

Disclaimer: Investments in debt securities, municipal debt securities/securitised debt instruments are subject to risks, including delay and/or default in payment. Read all the offer-related documents carefully.

Northern Arc Securities Private Limited (NASPL)
SEBI Registration No.: INZ000318831 | NSE Membership No.: NSE: 90387 | BSE Membership No.6895 Registered Office: 10th, IITM RESEARCH PARK, Kanagam Rd, Kanagam, Tharamani, Chennai, Tamil Nadu 600113
(This article is generated and published by ET Spotlight team. You can get in touch with them on [email protected])

This story originally appeared on: India Times - Author:Faqs of Insurances