With interest rates at a historic low, investing in bonds is becoming increasingly popular. There are many different types of bonds, some high-risk and some low. One bond that can be considered an alternative to money market funds is premium bonds. But what exactly are premium bonds? Are they worth investing in? And are premium bonds a good investment in India? This article explains premium bonds, the risks of premium bonds investment, and if premium bonds are a good investment in India.
What are the Best Bonds to Buy in India?
The best bonds to buy in India offer you a high return while being low risk. One way to ensure this is to invest in government bonds and AAA rated corporate bonds. If you have a low-risk appetite and are looking for some fixed income with a regular interest rate, you can invest in India Infrastructure Finance Company, National Highways Authority of India, Power Finance Corporation Ltd, India Railway Finance Corporation Ltd, and Tata Capital Housing Finance Ltd.
Is Investing in Bonds a Good Idea in India?
Bonds can be an effective tool for diversifying a portfolio. They often perform differently than stocks, so they can counterbalance when equity markets are struggling. That balance helps reduce the overall volatility of an investment portfolio. Bonds offer lower potential returns than stocks, but they also come with less risk. For these reasons, bonds are often thought of as a conservative investment. A bond is essentially a loan to the bond issuer. You loan money to the issuer at a fixed interest rate for a pre-determined period. The interest payments are your return on investment. You don’t have to hold bonds until they mature. If you need to sell your bonds before they reach maturity, you can do so on the secondary market, i.e. through a broker. However, if you sell before maturity and there is no strong demand for your bond, you may have to sell it at a discount and lose money on the deal.
Best Time to Buy Premium Bonds
Don’t always think you have to buy at their peak. If you’re looking for a guaranteed return, bonds are one of the least volatile investments. The stock market has ups and downs, but bonds tend to go up over time. Go online to read about different types of bonds and how they work. Many financial institutions offer price breaks for new customers, so look for those ads. Remember not to wait too long if you’re buying a bond with a high-interest rate.
What are Chances of Winning on Premium Bonds with 30,000
With a 30,000 investment in premium bonds, you will have 3,000 chances of winning. The odds of any individual Bond number winning a prize in each monthly draw are 30,000 to 1. If all your Bonds were held for 12 months, you would, on average, expect 24 of them to win a prize. The number of bonds that win a prize each month is determined by chance, so it could be more or less than this figure.
How to Buy Premium Bonds?
As the name suggests, these bonds come with a premium value. The government determines the interest rate based on the prevailing market conditions and is linked to inflation. The investor gets the interest amount every six months, and at the end of a specified period, the principal amount is returned to the investor. The primary difference between premium bonds and regular bonds is that in premium bonds, there is no fixed rate of interest that you will get, and instead, you have a chance to win big amounts as prizes. The process of buying premium bonds is simple. You can buy premium bonds at any designated bank or post office by submitting a form along with cash, depending on the denomination of the bond you want to buy. You can also buy online using NEFT/RTGS /ECS/Netbanking facility through any bank branch.
What Are the Risks of Investing in a Bond?
Premium bonds are one of the most popular investment options in India. They’re issued by the government and backed by the full faith and credit of the government. The upside is that they offer a guaranteed return, plus a state tax deferment. In some cases, they can also offer a discount on income tax if you earn money from investments outside India. However, they’re not without their risks. As with any investment, there’s always a chance that you’ll lose money on your premium bonds. You could owe more than what you originally borrowed or have to pay back interest before receiving your bond principal. The risk is amplified in India because premium bonds come with an interest subsidy. If you hold them for at least three years, the government will pay off part of your interest payment. If you don’t hold onto these bonds for at least three years, you’ll be charged interest so large that it could wipe out your initial investment.