FAQs on Bonds

FAQs on Bonds

1) Why do I see a change in the settlement amount?
The bond price, also known as the settlement amount that is displayed on the website, comprises both the market price and the accrued interest. Interest accrues on a daily basis until the purchase, and the market price also fluctuates daily. Therefore, If there is a time gap of a day or more than a day between adding bond units into the cart and the final purchase, then you will see a change in the settlement amount.
2) Why should I invest in the Fixed Income Market (Bonds and Debentures)?
Bonds’ fixed-income market can provide investors with returns as high as 9 – 10% per annum or more. Investments in Bonds and Debentures are a more rewarding and reliable mode of growing your money than the existing options of fixed deposits and mutual funds. Moreover, you get the additional benefits of minimum to low risk (for AAA to A Bonds), capital growth, earning a regular income, tax-free income, and tax-saving options available in this investment segment. With GoldenPi's easy investment platform, we now give you access to the bonds that were earlier available only to large corporations, Family Offices, or HNIs.
3) What are bonds and debentures?
Bonds and debentures are debt investment instruments with a Fixed Rate of Return and Fixed Maturity Period. While Bonds are securities that are mostly issued by the government, debentures are always issued by corporations.
Bonds and Debentures are issued by these entities to raise money from investors as loans used to fulfill business objectives like entering new markets, starting a new project, or scaling existing businesses. For every bond/debenture issue, fixed interest payments (Coupons) are made regularly on pre-specified dates. The principal loan amount(face value per unit of Bond/ Debenture) is paid back on the pre-specified maturity date.

4) How to find DP ID and Client ID?
You can find your DP ID and Client ID in the profile section of your broking account.
  1. If your DEMAT is with CDSL, both the DP ID and Client ID will be eight digits each. Example: If 0577057744224422 is the Demat number/ID, then DP ID is 05770577 and Client ID 44224422.
  1. If your DEMAT is with NSDL - both DP ID and Client ID will be of 8 characters each where the starting characters are ‘IN,’ and the following characters will be numeric. Example: If IN12345678912345 is the Demat number/ID, then DP ID is IN123456 and Client ID 78912345.
Alternatively, you will find your DP ID and Client ID in your E-CAS statements that are sent to your email id associated with your broking account.
5) What are the Primary Market and Secondary Market?
The Capital market, where companies or governments directly issue securities (debt-based or equity-based) to raise funds, is called Primary Market. In the primary market, the issuer sells securities at predetermined prices. The buyers in the market can be financial institutions, corporates, mutual funds, and individuals.
The secondary market is the capital market, where securities are traded among investors. Trading can happen between Financial institutions, individual investors, or both. The issuer doesn't participate in trading. The price of the securities in the Secondary Market is dependent on current demand and supply.

6) How 'Face value' is different from 'Investment Amount'?
Face value is the price at which a Bond unit is issued by the Bond issuer. The price at which bonds are traded is called the Market price. The Investment Amount is the sum that an investor pays to purchase a bond. This investment amount is the sum of the Market price and Accrued interest.

7) What are the differences between Coupon and Yield?
The Coupon or Coupon rate is the interest rate paid by fixed-interest security such as Bond/ Debenture. It is the annual payment towards the face value of a bond. The bond-issuing company pays it to the bondholder. The yield is the effective interest rate on bonds. The yield will vary inversely with the market price of the Bond.
Yield= (Coupon/ Market Price of Bond) X 100
8) What is the relationship between bond yield and bond price?
The yield is the effective interest rate on bonds. The yield will vary inversely with the market price of the Bond.
Yield= (Coupon/ Market Price of Bond) X 100

Interest payouts on bonds are fixed; an increase in bond price means you(or the buyer) pay more for the same returns, so effective returns are less. 
Another way is also true: if bond prices decrease, you (or the buyer) are paying less for the same returns; hence effective returns are more. Thus bond yield and bond price are inversely related.
9) Why does the Yield of a Bond fluctuate?
The yield is the effective interest rate that one earns from bonds. It is a function of coupon and market price. As the market price of Bonds fluctuates due to varying macroeconomic and sector-specific/ issuer-specific factors, so the Bond Yields also change with time. However, it is to be kept in mind that once an investor has purchased a Bond at a certain price, the investor’s yield remains fixed till maturity of the Bond.

10) What is the difference between YTC, YTM, and Coupon?
Yield to maturity(YTM) is the effective return that an investor gets if he/she holds the Bond until maturity. In the case of callable bonds, Bonds can get called back by the issuer on the call date, so the callable date becomes a proxy for the maturity date. The effective returns calculated until this callable date is called the Yield to Call (YTC). The coupon of a Bond is the fixed interest that a Bond pays annually.
11) Are returns earned from my bond investment taxable?
For interest earned from Taxable Bonds, the earnings are taxable. For interests earned from Tax-Free Bonds, the earnings are 100% tax-free. Also, capital gains earned from selling any Bond (taxable and tax-free) before maturity are subject to capital gains taxation rules. Here is a blog that explains Taxation on Gains from Bond Investments.
12) Why is the Yield different from the coupon?
The coupon is the fixed rate of interest promised by the issuer, whereas yield is effective returns from the bond investment. Yield is dependent on the market price, and the yield varies inversely to the bond’s market price.
13) Why do I need to pay accrued interest?
If the present bondholder sells his Bonds, he has to get the interest until the date of the sale. Here can be a time gap between the last interest payout he received until he sells them. As the next interest payout goes to the buyer, the buyer must pay this accrued interest to the seller, in addition to the Bond’s selling price.

14) How will I receive the interest payment?
The interest payment will hit the bondholder’s bank account associated with the Demat account as per the predefined schedule.

15) Once a Bond matures, how do I get my money back?
For Bonds/Debentures, the money automatically gets remitted to your bank account on the date of maturity.

16) Where will I receive my interest payment?
The Interest payouts from Bonds get credited to the Bond Holder’s Bank account that is attached to his/her Demat account.

When will I receive bond units in my Demat?
Once your order is confirmed, bond units will be credited to your Demat account on T+1 day i.e. next trading day.
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