Corporate bonds are an attractive investment avenue for retail investors . They offer higher returns and can be traded for capital gains. Some infrastructure companies' bonds offer tax deduction under Section 80CCF. Many blue chip companies have either come or are likely to come in the market for issuing bonds.
Companies and financial institutions raise funds needed for growth and expansion through bonds. In return, investors are paid interest and get back the principal amount on maturity. In the past, several companies such as Tata Capital, L&T Finance and Shriram Transport offered non-convertible debentures (NCDs). IFCI came out with an infrastructure bond in August. And now IDFC is offering infrastructure bonds too. All this has led to a growing interest in bonds. But there are some risks involved and one must know how to trade if the product suits his investment portfolio.
BONDS
Corporate bonds are usually issued with a face value of `1,000, `5,000, `10,000 or 1,00,000. They can be of short-term, medium-term or long-term maturities. They are usually in the nature of a promissory note or either secured or unsecured NCDs. They either carry a fixed or floating rate coupon. In India, most companies offer fixed interest rate-bearing bonds. They are usually issued in dematerialised format. They can either be cumulative or noncumulative. Some companies have a put or call option in case the bonds are of longer duration; for instance, the current IDFC issue has a buyback facility. Zero coupon bonds (ZCBs) are also available, issued at discount to the face value.
Some bonds are listed on stock exchanges and you could make a profit by selling your corporate bonds in the open market before maturity. Interest rates and prices have an inverse relationship. So, a good time to buy the bonds is when the interest rates are high. When interest rates fall, you may sell them at a premium.
RISKS
At times, the company issuing the bonds may not be able to service these or repay the principal amount if it is facing a cash crunch. This will mean you cannot get your principal amount or the inter 6,180 and those 2,060 by Bonds are available in a range
