A bond is a fixed-income instrument that earns a regular interest on a principal invested in a corporate or government body. Corporates and government entities, borrow funds through bonds and redeem the principal amount on maturity. Investment advisors advise investing a portion of your wealth in bonds for their lower volatility and predictable returns.
In India, investing in shares is more popular. However, with government efforts, bond market development, and investor education, bonds are gaining popularity. This step-by-step guide can help beginners learn how to invest in bonds online.
Where to begin: 5 ways to begin investing in bonds online?
Investing in bonds can be a little trickier than in stocks. There are multiple ways in which you can begin investing in bonds.
Just like shares of a company, you can subscribe to bonds via stock brokers. A Demat and trading account will be required to trade in bonds. Recently, many established stockbrokers have come up with websites and apps for investing in bonds. Similarly, several new-age fintech companies have entered the space with their user-friendly investment apps.
2. Mutual funds/debt ETFs
Mutual funds and ETFs are an indirect way to invest in bonds. Debt mutual funds pool the savings of investors and invest in various bonds. Debt ETFs work like mutual funds but are linked to an index. ETFs, invest in the debt instruments as the underlying index in the same proportion. For a total beginner, this route can be more straightforward.
3. RBI retail direct
Government bonds can be bought directly from the retail direct platform launched by the RBI. For this, the investors have to open a retail direct gilt account with the RBI.
4. Stock exchanges
Investors can subscribe to government bonds issued in the primary market from the NSE goBID and the BSE direct online platforms. Subscription via these stock exchanges is done through the non-competitive bidding route.
5. Bond platforms
Investing in various categories of fixed-income instruments has become easier with bond platforms. Bond platforms are one-stop platforms for trading bonds. Platforms like BondsIndia.com allow investors to open trading accounts and subscribe to different types of bonds like government, corporate, and perpetual bonds.
How to buy bonds on a bond platform –bondsindia.com – A step-by-guide?
Step 1. Visit a bond platform i.e., https://www.bondindia.com
Step 2. After creating an account on the platform, the next step is to complete the KYC requirements. You can directly visit – client.bondsindia.com.
Step 3. Your Aadhar and PAN card details will be required for KYC and address verification.
Step 4. On successful KYC, you will need to provide your Demat details for verification. A Demat and trading account is required to buy and sell bonds.
Step 5. The next step is to verify your bank account. Once done, you will be prompted to provide an e-signature to verify the details provided.
Step 6. Once the account opening process is successful, you can start investing in bonds.
Step 7. You can go through the various bonds available for investment and make a purchase. Platforms also prove filters to streamline your search as per your requirements and preferences.
Step 8. Once you have found a bond that meets your investment goals, you can purchase it via a secure and hassle-free online payment method.
How to buy Govt Securities via the RBI retail direct platform?
1. Retail investors first have to get themselves registered on the RBI Retail platform.
2. Once registered, they can move ahead with the application for opening a retail direct gilt account (RDG).
3. You will then have to complete the KYC process by furnishing PAN, contact information, and bank details.
4. Once the information provided is validated, an RDG account will be opened in the name of the investor.
5. All details required to participate in primary auctions and trading in the secondary market will be provided via email.
6. Retail investors also have to fill in nomination details at the time of opening the RDG account.
The RBI retail direct platform has two parts. One for primary auctions and the other for trading in the secondary market via NDS-OM.
How to buy bonds via stock brokers/stock exchanges/mutual funds?
Most of the steps in registering as an investor and creating a trading account for bond investment are similar for all players.
1. For the NSE goBID and BSE Direct, you will need to go through the KYC process and verify your Demat account to start trading. Existing investors with the stock exchanges are not required to go through the KYC and bank verification process again. Once an investor account is activated, investors can place their bids under the non-competitive bidding facility.
2. Similarly, new investors can create their accounts with an online stockbroker and invest in bonds directly or indirectly by buying units of a mutual fund or ETF.