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6 Type of Bonds to Invest in India

dateKnowledge Centre Team dateSeptember 7, 2021 views214 Views
Different Type of Bonds in India | Government Bonds | Investment Options in India

Bonds are debt instruments wherein an investor buys a bond from the state or a company and holds it until the bond matures. When that time comes, the bond's issuer will pay the bond's interest in full. Investors in India can choose from a variety of bonds, including those that are exclusively sold privately and a tax-savings bond that relieves the investor of a tax burden. You should have a mixed investment portfolio to boost your finances.

The bonds are usually locked in for 5-10 years. The maturity duration of the bonds is often referred to as the lock-in period. The bonds are also termed as Non-Convertible Debentures, or NCDs for short, because they are essentially debentures issued by the corporation that cannot be changed into shares, thus the phrase "non-convertible."

Investors can choose from a variety of bonds, such as Public Sector Undertaking bonds, Corporate Bonds, Emerging Market Bonds, and Tax-Savings bonds.

Type of Bonds in India

For centuries, Indians were already dealing in gold, and it has shown to be a sound investment. Here are some of the best reasons to invest in gold:

1) Public Sector Undertaking Bond

A Public Sector Undertaking Bond is a feasible option if you're searching for a medium- to long-term investment in the Indian bond market. Although PSUs are issued and supported by the Indian government, they are frequently sold privately. To put it another way, the Indian government targets private investors and provides them with fixed-rate bonds. In this circumstance, an investment banker normally merely acts as a middleman.

Also Read about - What is Investment?

2) Corporate Bond

These are much more classic bond securities that are issued by private Indian firms for terms of up to 15 years. A corporate bond, rather than the government bonds stated earlier, can be purchased by anybody. However, there is a greater chance of default. It can be influenced by the company issuing the bond, market conditions, the firm's industry, and its financial grade. However, the risk is compensated by a significant amount of money.

3) Financial Institution Bond

Bonds issued by banks and other financial institutions in India are a popular tangible asset that accounts for the majority of the country's bond market. The reasons are straightforward. Financial institutions and banks issue bonds that are well controlled and have high bond ratings. The far more significant stakeholders in this group are big investors.

4) Emerging Market Bond

Emerging markets bonds, granted by the Government of India, are sold overseas as strong currency to provide funds for third-world nations' industrial prosperity. These bonds are distinguished by the fact that they are typically issued in US dollars or Euros, making them more appealing to investors in those nations.

The rate of interest on such EM bonds is also appealing since, while it is high, it is often repaid by the issuer. The danger arises from the fact that individuals with similar credit ratings, such as India, have lower credit ratings, and the performance of the bonds is linked to the state's financial progress.

5) Tax Saving Bond

The Indian government used to offer special bonds that allowed citizens to be exempt from taxation in part or whole. Regrettably, these bonds were no longer available for purchase in early 2018.

6) Municipal And Local Authority Bonds

Local or municipal authorities can raise finance through bonds to fund projects like public waterworks, construction, etc. Credit rating agencies rate these bonds, and it is advisable to refer to the records before investing.

Government bonds have a premium rank when it comes to financial stability and guaranteed yields. Because G-Secs are a type of legal declaration of the government's debt obligation, they imply the issuing governmental body's commitment to repay according to the terms set forth. Inflation-Indexed Bond balances are modified to account for rising average prices. Aside from that, inflation is factored into the principal amount invested in Capital Indexed Bonds. These give investors an advantage because they are less likely to be financially harmed. After all, participating in such funds increases the real worth of the monies invested. According to RBI regulations, interest profits on Government Bonds are meant to be released to debt holders every six months. It enables investors to earn a consistent income by investing their unused funds.

Recommended Reading - How to Manage Money?

It's also a good long-term investment alternative for companies that haven't invested in stock market tools before. This security feature is suitable for risk-averse investors who desire superior investment security without the uncertainty associated with market-linked products. The Indian government has taken initiatives to guarantee that G-Securs gain acceptance and appeal among retail investors while also streamlining the subscription process.

Canara HSBC Oriental Commerce Bank even offers a Unit Linked Insurance Plan (ULIP), where you can have the benefit of both investment and insurance. These ULIPs are centred on many funds like equity, debt, liquid funds, etc. You can buy the best ULIP to stay on track of your financial goals along with protecting your life goals with a life cover.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Smart360 Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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