Bonds are fixed-income instruments that signify a loan forwarded by an investor to a borrower. Bonds are issued by entities to raise money from investors for a certain amount of time. The issuer promises to pay a specific interest for the life of the bond and the principal amount or the face value at maturity. Bonds are generally issued by governments, corporations, municipalities, and other sovereign bodies. Bonds can be traded, just like securities.
The market for trading debt securities like government bonds, corporate bonds, and tax-free bonds is known as a bond market. A bond market is generally less volatile than an equity market and is more suitable for investors with lower risk tolerance. Investing in bond markets is an efficient way to diversify your portfolio. The Indian bond market has grown by leaps and bounds after liberalization. With many foreign investors holding a certain proportion of fixed-income instruments in their portfolios, the Indian bond market has witnessed strong inflows of foreign capital in the past few decades. The primary role of a bond market is to help the government and large private entities access long-term capital.
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