The first thing that comes to most people's minds when they think of investing is the stock market. After all, stocks are exciting. The swings in the market are scrutinized in the newspapers and even covered by local evening newscasts. Stories of investors gaining great wealth in the stock market are common.
Bonds, on the other hand, don't have the same appeal. It seams to be confusing to the average person. Plus, bonds are much more boring - especially during raging Bull Markets, when they seem to offer an insignificant return compared to stocks.
However, all it takes is a Bear Market to remind investors of the virtues of a bond's safety and stability. In fact, for many investors it makes sense to have at least part of their portfolio invested in bonds.
Bond refers to a security issued by a company, financial institution or government which offers regular or fixed payment of interest in return for borrowed money for a certain period of time.
Some bonds have a special provision that allows the investor to save on tax. These are termed as Tax-Saving Bonds, and are widely used by individual investors as a tax-saving tool. Examples of such bonds are:
- Infrastructure Bonds under Section 88 of the Income Tax Act, 1961.
- Capital Gains Bonds under Section 54EC of the Income Tax Act, 1961.
- RBI Tax Relief Bonds.
- Government of India 8% Savings (Taxable) Bonds.