FAQs about Bonds: Introduction to relatively safer and stable investments

"Women are natural investors. We are risk-averse, we are disciplined, and we are patient."

- Sallie Krawcheck, co-founder and CEO of Ellevest

W: Welcome Story

Growing up, Asha had always admired her father’s dream of opening a small library. He was passionate about reading and believed everyone deserves free access to knowledge. However, financial constraints had always prevented him from turning his dream into a reality.

Asha, determined to help her father achieve his dream, started investing in bonds at a young age. She carefully researched different bond options and invested her savings wisely. Her investments grew steadily over the years, eventually accumulating a significant nest egg.

The day arrived when Asha surprised her father with her support in starting his library. She gifted a check for the initial costs and made him unwrap it.

He was overjoyed and in tears.

He immediately set up the library with Asha’s help. The lack of a library in the community led to its quick success. It soon became a hotspot for book lovers, and within three months, they began a book club with a premium membership to handle and direct the traffic for good.

So, how could Asha provide the initial investment for her father’s library?

What are bonds—and what did she do right?

E: Education

Compared to other investment options like stocks and mutual funds, Bonds are relatively less popular (in terms of awareness.)

Hence, we thought: “Why not shed some light on it by answering a few FAQs?”

Let’s gooo!! ??

Q1: What are bonds?

Imagine you're lending money to a friend.

A bond is a loan that you lend to a government or a company. In return, they promise to pay you back the money you lent them, plus interest, at a specific date in the future.

It is a good option if you’re looking for a relatively safe investment that can provide a steady income stream.

Q2: Different types of bonds

There are various types of bonds, but the two most common are government and corporate bonds.

• Government bonds: These are issued by governments to raise money for things like infrastructure projects and social programs. These are considered safe investments as governments are unlikely to default on their debt.
• Corporate bonds: Companies issue these bonds to raise money for things like expansion and new product development. Corporate bonds are riskier because companies possess a risk of going bankrupt.

Q3: Why should you invest in bonds?

• Bonds are a relatively safe investment
• Bonds provide a steady stream of income: Bonds pay interest on a regular basis—every six months or annually. This generates a steady income stream to help you meet your financial goals.
• Bonds diversify your portfolio: Diversification means investing in various asset classes, such as stocks, bonds, and real estate. This can help to reduce your overall risk because if one asset class performs poorly, the others may still perform well.

Q4: How effective and affordable are bonds compared to other forms of investments?

Bonds are less effective at generating high returns than other investments. However, they are also less risky. The difference in the risk-return profile offsets the high fluctuations of other assets in your portfolio.

Moreover, bonds are affordable as the minimum investment amount is typically low.

Q5: What are the risks associated with investing in bonds?

The main risk associated with investing in bonds is the Risk of Default.

It means the bond issuer (i.e., the government or company) will default on their debt and not pay you back the money you lent them.

As mentioned above, Risk of Default is generally low for government bonds but higher for corporate bonds.

A: Actionable Steps

• Research before investing in any bond. Make sure to understand the bond issuer and their financial condition.
• Consider your investment goals and risk tolerance when choosing bonds.
• Invest in a diversified portfolio of bonds. This will help to reduce your overall risk.
• Rebalance your portfolio regularly. This means selling some of your bonds that have performed well and buying more of those that have performed poorly. This will help to keep your portfolio aligned with your investment goals and risk tolerance.

If bonds sound promising and you want to add a stable investment asset to your portfolio, we have got a super interesting announcement!!

But more on this in the Happenings section.

Keep reading!

L: Learning

The blog from Investopedia explains how bonds are priced and gives an overview of how they work. To gain more context, this blog will be a good read.

T: Thought Leadership

"Bonds are like insurance for your portfolio. They provide a safety net if the stock market falls.”

- Rick Ferri, financial advisor

Bonds are compared to insurance (metaphorically) as they offer a degree of security and stability.

In times of stock market volatility or decline, bonds act as a safety net, helping to mitigate potential losses. By diversifying a portfolio with bonds, investors can reduce risk and ensure a more balanced and resilient investment strategy, much like having insurance to protect against unexpected financial setbacks.

H: Happenings

Bondbaazar x Moolah

We have collaborated with Bondbaazar to craft a Four-Hour workshop on Bonds.

INVESTING IN BONDS is not an alien subject anymore!

We cover A-Z of bonds in the workshop, including topics like:

• Basics about bonds
• Types of bonds
• Risks associated and Returns expected
• Evaluating and choosing what bonds to invest in
• Opening your account and start investing

…and many more.

The workshop (or should we call it a gateway to a balanced portfolio) is on Oct 14, Saturday and 15th, Sunday; 11 am-1 pm IST on both days.

Here is the investment to solidify your investment portfolio (if you know what we mean :p):

We offer the course for INR 1000, but but…

Here is where it gets interesting…

You can avail a 40% off coupon by spending two minutes of your time.

?400 off if you invest two minutes of your time. If this doesn’t sound like a good deal, we don’t know what is.

Keep an eye on your inbox. We’ll share an email explaining how you can get a 40% off.

That’s all we have in today’s issue. We’ll see you again in fourteen days.

PS:

If you want to ask us questions or if we can help you in any way, you can ping us at [email protected]. We will respond within 24 hours.