The Different Types of Bonds that You Can Invest In

Bonds are issued by different institutions for different reasons. What’s important for you to know and consider is the reliability and trust you have on the bond issuing company to return your money. Also, another important factor to consider is the reason for your investment. Are you investing to earn some tax-free income or are you in need of regular fixed-income? Maybe you’re investing to build a more diversified investment portfolio. Whatever the reason may be, having a better understanding of the different types of bonds in the market will help with your decision-making, so that you choose an investment option to matches your financial needs.

Here are some insights into the different types of Bonds in the Market:

1. Government Bonds

Government bonds are issued by the national government and are also known as ‘sovereign debt’. What this means is that these bonds will be repaid using the taxes collected from the people. These types of bonds are considered to be the safest and a risk-free investment option if it’s issued in a stable country with a growing economy. A risk-free investment option with no tax deduction at source, government bonds are a lucrative investment option for individuals with low-risk appetite, looking for stable returns. Earlier, investments in Government bonds was possible only through banks and post offices, however, now retail investors can buy these bonds using their Demat accounts.

2. Municipal Bonds

Municipal Bonds are issued by local or state level governments or other agencies of the government like the transportation department, healthcare department in order to fund government activities. Credit rating agency – SEBI has instructed that all municipal bonds should have a rating above investment grade for public issue. Moreover, municipal bonds should have a minimum maturity period of 3 years. Like government bonds, municipal bonds are one of the safest investment options, as it is backed by the government’s ability to repay the amount invested. The other advantage is that all municipal bonds fall under the tax – free segment of investment.

3. Public Sector Bonds

Public Sector Bonds are bonds issued by organizations within which the government holds more than 50% ownership. These bonds are usually medium to long-term bonds with maturity periods ranging from 5 years upwards. Some PSU bonds also come under the tax-free investment category. PSU bonds are implicitly guaranteed by the government, bringing in a greater sense of stability. However, it is up to the investor to do their research and background check to verify the reliability of the issuing company.

4. Corporate Bonds

Large corporations and financial institutions take up a large portion of the corporate bond market. Depending on the maturity period, Corporate Bonds can be classified as short-term, intermediary or long-term which goes up to 12 years. The biggest difference between government bonds and corporate bonds is the higher yield rate. Corporate bonds don’t enjoy the stable status of the government and hence have a higher risk percentage. However, Corporate Bonds will provide a good rate of fixed returns. Most corporates with good credit ratings and reputation in the market are less likely to default, and hence investing in them will be a good bet for those who do their research and background check.

5. High-yield Bonds

High –yield bonds are bonds issued by organizations that are new entrants in the market or those who haven’t built a strong reputation yet. These bonds have a lower credit rating than corporate bonds and offer a higher yield rate. For high-risk appetite investors, these bonds are opportunities that they leverage to make quick gains. Investors should understand the risk factors involved in this category before making an investment.

GoldenPi is India’s first online marketplace for bonds and debentures. If you’d like to start investing in bonds and debentures from the comfort of your home reach out to us! #BuyBondsOnline with GoldenPi.


You can check this, navigate through site and do some research. That link is good starting point.

What ever you see on kite can be bought, but they are very illiquid, spreads are wider, if you don’t know better avoid those bonds.

Depends on the bond, most will be semi annual/ annual, few can be quarterly or monthly but not sure if they are listed. You can check here for full info on any bond provided you have ISIN.

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No lock in period as such as I know, also see cdsl site for bond info.

@siva the bonds available on @GoldenPi are very limited in nature from a retail investor’s point of view because the minimum investment starts at 5-10 lakhs for most, and the rest are corporate bonds which are at high risk given current times of Debt market crisis and credit risks.

A safe fixed-income instrument like KTDFC FD which is backed by Kerala Govt and is still giving a fixed interest rate of 8% pa is no longer available on GoldenPi.

how can we invest in KTDFC FD ?

All details in the link. Physical form is required to be filled. The process is not online. You can send a cheque along or pay via NEFT and email them the details as well as mention on the form.

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I just have question, can we use this golden PI bond money in our Zerodha kite account for margin purpose.
If yes than how can we use this margin in our hedging position in Zerodha.

If the bonds you have invested in are part of securities which are approved for pledging then you can pledge them and use the margin for trading F&O. You can check the list here.

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If we are sure that the interest rates have bottomed out and will rise in the near future, will the investments into psu & banking / dynamic / debt risk bond mutual funds work out well?

Few articles published online were denoting the nav of debt mutual funds will fall if the interest rates increases.

Have you done any case study on this matter.
Will normal liquid/overnight funds outperform the dynamic bonds debt fund when the RBI starts becoming hawkish ?

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@viswaram I am a newbie in bond investing. However, from what I have understood, if interest rates increase, older bonds will become less valuable and hence their price will decrease (and yield will increase). So NAV of debt mutual funds will decrease.

It really depends on what your are trying to do, if you are just trading bonds then you have to follow buy low, sell high wrt the bond’s price. However, if you are buying bonds to diversify and building a long term portfolio then it shouldn’t be a concern. You can never decide a suitable time to enter the bond market for a long term portfolio, I guess. However, I would love feedback from other experts too, since I have a very superficial knowledge in this and am still learning. @GoldenPi @siva @ShubhS9 Thanks!

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just a recommendation, Read varsity - Varsity by Zerodha – Markets, Trading, and Investing Simplified. for knowledge.

half of my wealth is in liquid funds earning 3.5% per annum. since i have moved to another broker now (they are offering 100% collateral)
so now i need not keep funds in cash component, and could move out to debt funds in bonds ( approx 5 to 6% returns)

so before making the switch, i wanted to know if the opportunity cost is worthwhile or not. If the bonds nav is going to drop in another 6 months - whats the point.


@TradeXMaster Thanks for the recommendation. I have read few chapters. Can you please let me know where can I find information related to bonds as in - Is there a proven and a good way to time the bond market and if its worth it? Is there a detailed discussion regarding this somewhere. I have gone through modules of varsity related to Bonds.

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If you want to invest in Bonds for a long term goal like retirement or just keeping a part of your cash protected for 10-20 year to come, it really doesn’t matter if you buy the fund now or later because as far as I know, no one is clear about interest rates hikes and the extent of their impact. There are other factors at play as well like oil prices, global cues. So lets say for some reason there is a major correction in the stock market like a stock market crash( may be), In that case having long term bonds in yr portfolio will actually be good since it ll help you hedge against such a crash and yr long term bonds’ value will increase in such a crash since people rush to safety of bonds in such times. So as I said earlier, it really depends on your goals.

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Can anyone tell me a proper route to invest in US bond ETFs like iShares 1-3 Year Treasury Bond ETF or Vanguard Intermediate-Term Treasury ETF. Can we do it in kite?

Obviously not.
You can buy it from NYSE or Nasdaq exchanges.
For that you can open a international broking account with some indian brokers (who partnered with American brokers). This way you can buy those ETFs.

Btw, do you know if we can buy inverese ETF from India ? Is there any regulation on that by Indian govt ?

Thanks a lot. I am not sure about inverse ETFs but would definitely explore about it and drop a message here when I get to know.

Thanks @Shubham_Sharma