What are Bonds and How to Invest in Them?

The State Bank of India (SBI) recently raised Rs 10,000 crore through its maiden issue of infrastructure bonds for funding projects in verticals such as power and roads. 

So, what are bonds and how can an investor invest in them? Bonds are debt instruments where investors lend their money to bond issuers, which could be governments, banks, non-banking financial companies, or corporate entities, who then invest it further, which could be for providing operating cash flow, financing debt, or funding capital investments in education, infrastructure healthcare and other projects. The bond issuer promises returns at the end of the bond tenure, along with interest payments at regular intervals. 

Bonds can be segregated depending on the tenure of maturity. For instance, bonds with a maturity period of fewer than five years are called short-term bonds. Those with a tenure of 5-12 years are referred to as intermediate-term bonds, while long-term bonds are those with a tenure of more than 12 years.

Considering that the risks associated with bonds are comparatively low concerning other investment instruments, an investor can look forward to adding them to the investment portfolio.  

Bonds can be purchased in three ways. An investor can approach a financial broker and buy bonds akin to stocks.  

Bonds can also be bought through mutual funds or exchange-traded funds (ETFs). 

Also, it is possible to invest in government securities (G-Secs) through the Retail Direct Scheme. As per this system, an investor can register for a Gilt Securities Account with the Reserve Bank of India (RBI) called Retail Direct Gilt (RDG). RDG account holders can participate in the primary issuance of Central Government Securities (CG), State Government Securities (SG), Treasury Bills (T-Bills), and Sovereign Gold Bonds (SGBs). 

In addition, an investor can look forward to buying the bonds by using the website of the National Stock Exchange (NSE) or the NSE app.