Explainer: Investing in shares is scary, how can you earn good money from bonds? - Newztezz Online

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Wednesday, January 3, 2024

Explainer: Investing in shares is scary, how can you earn good money from bonds?

If you are also afraid of investing in shares or you do not want to get into the trouble of high risk in the stock market. Then you can also earn good income by investing in bonds. Let us understand this...

Investing in the stock market is not for everyone. The reason for this is also clear that there is huge risk in the stock market. In such a situation, people often turn to traditional options like FD or RD, but they do not get the desired returns. Then what can be the way to earn good returns, then the answer is to invest in the bond market. Where you can get better returns in a safe manner.

How to make money from bonds? Does it give good returns? Does only the government issue bonds? Are bonds also traded? Before understanding all these things, let us know something about bonds and their difference from shares.

difference between bond and share

Whenever you buy shares of a company, you become a shareholder of that percentage. In a way, you own an equal amount of shares of that company. Now if your company's business runs well, it earns profit and performs well, then you get the benefit of its positive days. At the same time, if the performance of the company is bad or it has incurred loss, then like your own business, its loss is also yours.

This is a matter of big share. Now let us understand bonds, generally companies, banks or government issue bonds to raise capital. But actually it is like an 'on paper loan'. So like a loan, your income in this is fixed in the form of interest. Also, you get its full payment on maturity.

Just as you have to repay your loan at all costs, similarly the company, bank or government also makes the maturity payment of the bond. Therefore it is safer than shares. What does the company do, what doesn't it do, how does it do it? The bond investor has nothing to do with all this.

How to earn money from bonds?

Your principal income on bond investment is the interest received on it and the principal returned on maturity. But this happens in so many ways. Let us explain…

Usually an individual buys the bond directly and holds it till maturity, like buying 'Kisan Vikas Patra' from the post office. But mutual funds are also a way to invest in bonds.

You can invest in such mutual funds which deal only in bonds. Another way is to invest in bond ETFs.

You can buy bonds from the bond market just like the stock market. Yes, many bonds are traded. Many times needy people sell their bonds in these markets at a price lower than the face value. People buy low priced bonds and earn good returns when they mature.

Suppose you bought Sovereign Gold Bond (SGB) at a price of Rs 3000 per gram. But you needed this money even before 8 years. Then you can buy and sell this bond in the bond market. Now let us assume that you sold it at a discount for Rs 2700, that is, the buyer got the bond for Rs 2,700 instead of Rs 3,000. Now if the buyer keeps this bond till maturity, then he will get the return only according to the value of Rs 3,000 and in this the savings made in buying the bond cheaply will be extra.

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