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Many are interested in buying government bonds. You can buy such bonds by bidding through your brokerage account. The intention of investing in such bonds is not amazing, given that they are credit-free. In this article, we discuss the factors that you should consider when investing in such bonds.
Married risk
Think about this. You have a lump sum money, which if invested at 6.5% per year, can help you achieve a target of 10 years. Therefore, you buy a 10 -year government bond to pay 6.50% per year. The bond gives you interest in every half year. The issue is that you have to re -establish the interest received 6.50% per year for the remaining period of the target. Otherwise, you are unlikely to deposit the money required to achieve the goal. Why?
The required return of 6.5% is a (post-tax) mixed annual return, called minimum allowable returns or mar.
This means that you have to re -establish 6.5% per year interest on the goal’s life to accumulate the necessary money. Government bonds do not compound interest income. You have to find ways to re -organize interest income. The risk is that the interest rate can take a dip in any period through the life of the bond (ie., Revision Risk). This means that you can fail to achieve the goal. In addition, it is optimal to match the maturity of bondage with time horizon for life goals; At the time you invest, at that time you cannot appropriate maturity for life goals.
If you have a 10 -year goal, a 10 -year bond should be auctioned at the time of investing by you. It invests to invest for 6, 7 or 8-year-old life goals, as RBI cannot auction bonds for such maturity. Note that interest income on government bonds is taxed at your marginal tax rate.
conclusion
What about funds investing in government bonds? Your investment is based on the Net Asset Value (NAV) of the fund, which is the market value of the portfolio divided by the number of units. This means that when the price falls in the portfolio, the fund will fall in NAV. Therefore, such investment is exposed to market risk.
There is no market risk in direct investment in government bonds; You can catch bonds until maturation and get equal value regardless of interest rate at that time.
(The author provides training programs to individuals to manage their personal investment)
Published – 01 September, 2025 05:49 AM IST
