Bonds and debentures are debt investment instruments with a Fixed Rate of Return and Fixed Maturity Period. While Bonds are securities that are mostly issued by the government, debentures are always issued by corporations.

Bonds and Debentures are issued by these entities to raise money from investors as loans used to fulfill business objectives like entering new markets, starting a new project, or scaling existing businesses. For every bond/debenture issue, fixed interest payments (Coupons) are made regularly on pre-specified dates. The principal loan amount(face value per unit of Bond/ Debenture) is paid back on the pre-specified maturity date.

Here are a few points that justify why you should consider investing in Bonds.

• Bonds provide a fixed return
• Returns from bonds are unaffected by the market fluctuations
• Bonds give higher returns than FDs
• The perceived level of risk in Bonds is low. In fact, it's lower than that of Debt Mutual Funds

Bonds and FDs are both low-risk securities. Still, you should choose Bonds over Fixed Deposits because :

• Bonds provide higher interest returns than FDs.
• Bonds are tradable, but FDs are not.
• Bonds offer more diverse tax benefits than FDs, including the potential for savings on capital gains in addition to tax benefits on interest income.

Considering the Risk Pyramid, Bonds fall into the category of low-risk securities just like Fixed Deposits. There are a couple of risks involved.

• Default risk: The loss that an investor faces when issuer defaults(fail to return principal amount or Interest payments or both)


• Liquidity risk: This loss comes into picture only when an investor wants to sell bonds before maturity. This loss is incurred by the investor when he/she finds no buyer for their bonds and hence sells them at a discount.


• Interest-rate Risk: If interest rates increase, the price of the Bond decreases. At this time, the investor wants to sell the bonds he/she has to sell at a discount price. However, the flip side is that, if the interest rates in the economy decrease, bonds’ selling price will increase. At such a time, an investor can make capital gains by selling his bonds at a premium to his buy price.

Corporate bonds typically offer interest payouts, tradability on exchanges, and accessibility through regulated platforms. They also fall under different tax treatments depending on tenure and investor profile. Risk levels vary by issuer rating.