Investing: The Basics

Demystifying Bonds

A bond is a loan in tradable form — the issuer promises periodic interest (the coupon) and return of principal at maturity. This guide covers the core vocabulary (face value, coupon, maturity, Yield to Maturity, credit ratings from AAA to D), the major categories available to Indian investors — Government Securities and SDLs (accessible directly via RBI Retail Direct), corporate and PSU bonds, tax-free bonds (a legacy category with limited new issuance but tax-exempt interest on existing issues), Section 54EC capital gains bonds, zero-coupon, floating-rate, convertible, and perpetual bonds (including AT1 bonds, with a real-world cautionary note on loss-absorption risk). We explain the single most important bond price dynamic — the inverse relationship between interest rates and bond prices, and the concept of duration — and cross-reference the current tax treatment of bond interest, listed bond capital gains, and debt mutual funds from tackl.finance’s tax series.