Bonds Explained: Decode Corporate vs. Government Bonds to Boost Your Portfolio!

This article demystifies corporate and government bonds, crucial for investors navigating market volatility. Corporate bonds are issued by companies to raise funds, typically offering higher returns (8-10%+) over tenures up to 10 years. However, these come with elevated credit/default and liquidity risks, as repayment hinges on the issuer's financial stability. Sandeep Parwal, Founder of SPA Capital, advises assessing creditworthiness or opting for diversified debt funds.

Government bonds, or G-secs, are backed by the central government, making them virtually risk-free in terms of credit. While they carry interest rate and inflation risks, they offer stability and predictability, with experts like Tejas Khoday from FYERS highlighting their role as a financial anchor. Treasury bills (T-Bills) and RBI's floating rate savings bonds are other government debt instruments.

Sagar Praveen Shetty from StoxBox notes that corporate bonds compensate for their higher risks with attractive yields. Conversely, government bonds suit conservative profiles with modest returns. The article stresses understanding risks like credit/default, interest rate, liquidity, and inflation for both types. Credit ratings (e.g., AAA) further differentiate corporate bond safety and yield. For young, risk-averse investors, a larger allocation to government bonds (60-80%) with a portion in AAA corporate bonds is recommended.

Impact: This news provides educational insights, influencing investor decision-making regarding fixed-income instruments and portfolio diversification. It aims to enhance understanding of investment risks and strategies in the Indian debt market. Impact Rating: 5/10

Terms: Corporate Bonds: Debt instruments issued by companies to raise capital, offering fixed returns but carrying credit risk. Government Bonds (G-secs): Debt instruments issued by central or state governments, considered very safe with minimal credit risk. Credit Risk: The risk that a borrower will default on its debt obligations. Default Risk: The risk of a borrower failing to make promised payments to lenders. Liquidity Risk: The risk of not being able to sell an asset quickly enough at a fair market price. Interest Rate Risk: The risk that bond prices will decline due to rising market interest rates. Inflation Risk: The risk that the purchasing power of an investment's returns will be eroded by inflation. Treasury Bills (T-Bills): Short-term debt instruments issued by the government, sold at a discount to face value. Credit Ratings: Assessments of an issuer's creditworthiness, indicating the likelihood of default (e.g., AAA is the highest rating).