A bond is a debt instrument where an investor gets a fixed time bound return on their investment. Unlike an equity instrument, the return on a bond is known at the time of investment. It is tradable on the stock exchange, which gives liquidity benefit to the investor. Italso offers a better rate than fixed deposits and better tax treatment, thereby increasing the overall return for the investor. Further, bonds are a good diversifying instrument that protects the investor portfolio from market shocks.
Bonds can be of two types – secured and unsecured. In a secured bond, the issuer of the bond provides specific assets as collateral for the bond and offers a safer investment option as compared to unsecured bonds.Since the issuer’s assets secure the bonds’, these are considered to be safer as compared to equity financial instruments. Unlike unsecured bonds, in case of a default, an investor can recover their initial investment from the pool of assets. They are not left high and dry, running from pillar to post.
There are two types of secured bonds - Corporate and Sovereign Bonds
Corporate bonds are issued with a security that can be in the form of a warehouse, high value machinery, or any other assets of the company. In case a company defaults in making the payment, investors have the flexibility to use the security to claim their investment repayment.
Sovereign Bonds are issued by the government to raise funds for redevelopment or repay certain debt. The interest is dependent on the creditworthiness of the issuing government. Since the bonds are issued by the government, they are considered safe.
A secured bond offers tangible benefits when compared with other investment instruments
Before investing, one should also assess the risk appetite, financial goals, interest and investment horizon. Secured Bonds are a popular form of investment due to the security it offers, regular income it provides and it is an ideal financial instrument when you want to diversify your portfolio.
Disclaimer: The information contained in this post is for general information purposes only. IIFL Home Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment, etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness, or of the results, etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Given the changing nature of laws, rules, and regulations, there may be delays, omissions, or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan product specifications and information that may be stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan.