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Bond Investing - Things you should know

As the season of tax saving is nearing, the market will be filled with tax free instruments like bonds. However, before investing in these instruments there are several details that needs to be understood. Read this space to know some of the things that requires investor's attention before investing.

December 19, 2012 / 06:24 PM IST

The season for tax free instruments is just starting and investors will witness a lot of these bond issues hitting the market in the coming months. There are several details related to these instruments that need to be understood as these will determine the manner in which the investor will face the operating conditions related to them. Here are some of the conditions that will require attention of investors and which they can concentrate on.

Exact nature

The exact nature of the bonds should be considered so that they give a correct picture of the entire situation. There will be several conditions that will be specified which will give a precise idea of the situation. Thus one has to see whether the bonds are secured or unsecured. If the instrument is secured then it is beneficial for the investor as it means additional safety. The nature of the security will also be mentioned so this can be seen to get an idea of the exact position that the investors will face. Further they should be redeemable in nature so this shows that they have a finite life and they could be bonds or even non convertible debentures. 

Manner of holding

There has to be a difference that has to be made between the manner in which the bonds can be held and those in which they can be traded. The bonds holding choices are likely to be in physical form or demat form. The investor can choose whichever option that they are comfortable with. However for those who are looking towards some sort of liquidity in the bonds through the trading of these instruments on the stock exchange then they might want to check whether there is trading allowed in physical form. If this is not allowed then using the demat route would have to be only choice that will help the individual deal with the situation.

Details of bonds

There are several conditions related to the bonds that will need the attention of the investor.  This will include the options that can be chosen in terms of the period for the bonds. Usually there are two options in terms of a 10 year and a 15 year bond and this will provide the main choice for the investor. The minimum application amount will determine how much the investor will need to invest when they make an application. The multiples that the investment will accept after that will also be important for those who want to make a larger application. There is also the question of the frequency of the interest payment that will be present and this will give an idea about the manner in which the payout can be received on the bonds.

Investor consideration

Depending upon the nature of the investor and the amount that is actually invested there will be different categories under which the investor will be segregated.  While it might not seem to make much of a difference about the category under which a person falls there is some value attached to this if there has to be limited allocation to each of the categories in case of over subscription. Further the manner in which the bonds will be issued to the investors should also be checked. This will enable them to know whether this will be on a first come first served basis or whether there are some other criteria for the same.  If there is a first come first served basis then it means that the investor should not wait for the last few days of the issue to actually put in their applications because by this time it might be too late. The prudent thing would be to go and make the application as early as possible so that the full allotment of the bonds is possible.

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