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5 basic types of bonds, explained

By Finserv MARKETS - Jul 27,2019
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Types Of Bonds

Investors the world over know it’s best to have a diversified portfolio. A diversified portfolio would include risky funds which have high returns, as well as fund options which may not be too risky but returns on them would be lower. With a diversified portfolio, the chances of losing all your money on risky bets decrease while the lower returns are offset through gains on riskier bets such as equity market investments. One of the most prominent examples of low-risk and low-return investments is the bank deposit. While they are definitely reliable in terms of mitigating risks, their rates of interest often fall too low for them to be a truly attractive investment option. Top performing ULIP funds are also diversified well enough to gain benefits from both the low-risk funds which offer lower returns, as well as the high-risk funds which offer higher returns.

Unit Linked Insurance Plans are one of the best ways to invest in a diversified portfolio. While it is a essentially a combination of investment plans and a life insurance policy, it allows for investment across equity, debt or a mixture of both. Available on Finserv MARKETS, these plans allow for complete flexibility while switching funds. So even if you do end up with more risky investments and the market looks down, you can switch to the safer funds which offer steadier returns at least for the time being. You can always switch back when the market looks favourable!

Another popular investment vehicle are bonds, which are usually issued by the Central or State government or even private corporations, to raise money for a specific purpose. These bear low risks since they are essentially interest-bearing debt certificates. Bonds are issued with a specific maturity period upon completion of which, the borrower i.e. the government or private entity, must return the money to the lender. If you do plan to invest in bonds, make sure the entity issuing it is completely reliable otherwise you might lose your money. By investing in top performing ULIP funds, you gain the benefit of being advised by those who have been in the business and understand the market much better than you would as a first-time investor. Read on below to learn about five different kinds of bonds:

Types Of Bonds In India:

1. Government Bonds:

Popularly called ‘Sovereign Debt’, these bonds are issued by the Union government when they need to raise money for a specific purpose, from the general public. It is a risk-free investment that offers stable returns.

2. Municipal Bonds:

These bonds are also a safe investment since they are issued by state governments or local government agencies to fund local government activities. Municipal bonds are required to have a rating above the investment grade and have a maturity period of three years, as mandated by SEBI, before being issued to the public. When you are planning to invest, compare investment options online and judge for yourself the best fund performance. You can then head over to Finserv MARKETS and invest in ULIPs that give you higher returns than municipal bonds might be able to assure you.

3. Corporate Bonds:

Corporate bonds yield higher returns and are issued by large financial corporations and institutions. The maturity period on corporate bonds can go up to about 12 years. However, they are high-risk investments and it is essential for an investor to run a complete background verification on these bonds before investing in them. With a ULIP, available on Finserv MARKETS, you can invest in equity shares issued by companies along with more secure funds which offer lower returns; thereby allowing your finances to be adjusted according to your risk-appetite. The best plans offers multiple benefits additionally.

4. Public Sector Bonds:

These bonds are issued by public sector corporations, where the share of the Central government is more than 50%. Since they are implicitly guaranteed by the Union government, they are generally considered a safe investment option. However, the returns leave much to be desired. On the other hand, the best ULIP performance, as witnessed offered on Finserv MARKETS, will display far better returns. Top performing funds are generally studied overtime by experienced professionals who have invested across a wide range of investments, and now know how to read market forces and will hence advise you accordingly.

5. High Yield Bonds:

These bonds, meant for investors with a high-risk appetite, are issued by companies who have just entered the market and are yet to establish themselves in the market. These bonds offer high returns but have a high-risk factor too. The best unit linked insurance plan will offer safety in order to offset these risks.

While bonds are either low-risk and offer low returns, or are high-risk and offer high returns; unit linked insurance plans strike a fine balance between risk and returns by allowing investors to invest a portion in funds that are high-risk but offer higher returns; and the remaining portion in funds that are low-risk and offer steady returns. Bajaj Allianz ULIPs, available on Finserv MARKETS, have a lock-in period of five years after which you can even liquidate a portion of your funds. These are the best investment plans in the country, with the best fund performance offered by any insurer.

Additionally, ULIP tax benefits at the time of investment, tax exemption when the money invested grows, tax exemption during fund switches and finally, exemption during the maturity benefit as well. Not only are they the preferred choice of investment instrument for quickly gaining returns on your investment, but they are also a popular investment tool for those looking to create wealth for the long-term.

To know more on ULIP investments in depth, you can check out these blogs:

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