Numerous investors express a strong interest in investing in bonds. For those who adopt a more cautious approach towards investments and risks, bonds are a viable alternative.
Bonds are financial instruments used in the debt market, where the lender (bondholder) lends money to the bond issuer (which can be a private or public sector company, bank, non-banking financial company, or even government). The bond issuer promises to repay the borrowed amount, along with periodic interest payments, at the end of the bond’s term.
The interest paid by the issuer to the bondholder is referred to as a “coupon,” and the total amount invested in a bond is known as the “bond price.” Both bonds and shares are considered capital market securities, but they differ significantly in their nature. Bonds make the bondholder a creditor to the company, while shares make the investor a shareholder, providing ownership in the company.
Businesses and governments issue bonds to fulfill their long-term financial requirements and address current budgetary gaps. Investors opt for bonds because they are perceived as safer compared to shares and other securities.
Incase you are looking for investing or knowing about bonds, feel free to use this space.
Can you recommend any website/articles/books to learn about bonds, calculate yields etc?
Also, what is the best website(s) to get information about bonds, days to maturity, coupon rates, current yield etc?
@ekveer Bonds were native to HNI investors a decade before. Hence, the terminology used is quite complicated and mainly the resources which you will find online will focus on bonds in the US (which are difficult to perceive on Indian context). So would recommend you to read NISM XXII Series on Fixed Income Securities. All the basics of Bonds (mainly from the perspective of Indian Capital Markets) are explained in a better way there. You can google to get the PDF.
Thanks @iamshrimohan. Will check that out.
@iamshrimohan when can we expect bonds to come on Dhan? it keeps saying “coming soon” on mobile app.
@erankitjain We are working towards it. By this Quarter, we would be making the first phase live.
Could you please tell me how to purchase RBI bonds? Whether they are held in Demat form or only in physical form?
Hi @Shally RBI Bonds (G-Sec/T-Bills/SDL) can be purchased via primary market (NCB Bidding). You can bid using the NSE goBID Platform using Dhan BOID. It is similar to applying for an IPO with the only difference that here you get assured allotment. Secondly, you can also purchase via secondary market (stock market). At times, you can get a better yield in the secondary market.
Thanks @iamshrimohan. How to do that in secondary market? Could you throw some light on that please?
Further, in primary market, can be purchased throughout the year?
Also, if one doesn’t have demat account, can these be held in physical form?
Can I pledge 706gs2028 for the margin?
If yes, please guide how to get it transferred from Zerodha to Dhan.
What are things at Dhan’s end to be kept in mind.
Hi @Shally Its just like buying stock. You can search for “GOI Loan” on Dhan. Select the coupon rate and Maturity. Now here is the catch. Refer to the SS below. You can see the bond name as GOI Loan 7.41% Maturity 2036. The coupon rate of 7.41 is paid on the Face Value of the bond which in case of G-Sec is always Rs. 100. Now if you buy @ 102.60 [LTP], your effective rate of return would be 7.41/102.60 = 7.22%.
This is one of the easiest computation of bond. However the most effective way to look for a bond yield is YTM. (which is quite mathematically complicated).
Now for the primary market yes the issue is open throughout the year. The schedule is displayed by the RBI every quarter and there are specific days in a week when these securities are auctioned
I am quite unsure about Physical form of these securities. AFAIK they are held in demat mode only. Only SGBs I know can be held in Physical form (certificate of holding).
Hi @Bhaskarsingh yes you can pledge 706GS2028 on Dhan. Infact you can find the list of securities which we accept for collateral here. You can transfer your securities from one broker to Dhan easily. For details on the same, refer to a detailed post on DIY here. Feel free to seek assistance on the same by connecting with us at email@example.com.
Thanks a lot for clarifying!
Also, I need to know does Dhan has the feature of buying bonds via its platform. A re-issue one and the fresh issue one both!
@Bhaskarsingh we are currently building the Bonds module on Dhan which will mainly be for that asset class. In the same module we are building the bidding platform, where u can place your bid directly. The issues open to bid are solely decided by the RBI, we will be showing them all (which includes both fresh issue and re-issue)
So this implies that currently, we can buy bonds at dhan which have enough liquidity and are being traded at the secondary market?
And buying at the secondary market often leads to premium pricing.
And Dhan should first integrate the re-issue bond bids like coin at zerodha does.
Personally, I prefer buying at coin at dirty price because they can be pledged the very next day.
In case of a fresh issue, it takes a few days before it can be pledged.
@Bhaskarsingh Yes. Not always buying in the secondary market leads to heavy premiums. For example, in T-Bills the Annualized ROI had been 12%+ many a times [Refer here.] (though such opportunities are hard to capture). We would be integrating both the types simultaneously.
For fresh issue, we need to wait for around a month as the NCL publishes a list of acceptable securities at around 20th of a given month. Any new ISIN is introduced in pledge acceptance only after then. However for re-issue just the wait is for a week as the ISIN is already under approved list of NCL.
Thanks @iamshrimohan for clarifying to a great extent!
Just one more thing, as you have mentioned that primary market is open throughout the year as per RBI’s published schedule. Can we directly participate in primary market? If yes, what’s the method for that?
Hi @Shally for bidding in the primary market NSE acts as a an aggregator. It collects bids from the Brokers where client can bid. We are currently building a platform just like IPO where Clients can directly bid for the securities. However meanwhile if you wish to bid you can log into NSE goBid platform and use Dhan BOID to place your orders. Alternatively, you can check the live open issues here and check the NCB G-Sec tab and drop an email to firstname.lastname@example.org. We would then place a bid on your behalf from our back office. Ensure to have sufficient ledger balance for the later purpose as money will be debited from your ledger.
Thank you, Shrimohan! You gave an amazing clarity.
Hi @iamshrimohan need clarification on interest payout of gov securities. are interest on gov bonds calculated at pro rata basis or every payout will be of 180days ?
for example 7.32% GS 2024 has coupon payment dates 0f 28th January & 28Th July. so if i buy bond today(14 aug) , will i get interest of 180 days or about 164 days ( from 14aug to 28 jan) on next payout date of 28th January ?