Frequently Asked Questions

What are bonds?

Bonds are debt instruments that governments and corporations issue as a means to raise capital from bondholders for various capital requirements like funding various projects, expansion plans, etc. Bonds typically have a fixed interest rate over a specific period and the principal amount is repaid at the time of maturity.

What is maturity in bond investments?

The maturity date is the specific date the issuer must repay you the face value of the bond. You'll also receive your final coupon payment on this date.

What is difference between Yield to Maturity (YTM) and Current Yield (CY)?

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity, with all payments made as scheduled and reinvested at the same rate.

Yield to call (YTC) or Yield to put (YTP)  is calculated the same way as yield to maturity, but assumes that debt instrument will be called (by issuer in case of call and by investor in case of put) and the investor will receive face value back at the call or put date. In case of bonds with Call or Put option, yield is calculated upto call (Yield to call) or put date (Yield to put).

While, Current Yield (CY) is an investment's annual income (coupon) divided by the current price of the security.

What are the differences between coupon rate and yield?

The coupon rate is the interest rate that bond issuers provide to bondholders based on the bond’s face value. 

The yield to maturity indicates a bond’s total value upon maturity, including all interest payments and the return of the principal. The yield varies inversely with the market price of the Bond.

The key difference between a coupon rate and yield to maturity is that the coupon rate remains constant over the bond’s tenure while the yield to maturity keeps fluctuating based on various factors such as the prevailing market price of the bond and the time left until its maturity.
 

What is call / put options?

A bond option is a contract that gives an investor or issuer the right to buy or sell a bond by a particular date for a predetermined price.

Call option - allows the issuer to buy back the bond at a predetermined price at a certain time (call date) in future. The holder of such a bond has, in effect, sold a call option to the issuer.

Put option - allows the holder to demand early redemption at a predetermined price at a certain time (put date) in future. The holder has the right to seek redemption from the issuer, prior to the maturity date

What does Perpetual Bond mean?

Perpetual bond is a bond with no fixed maturity date. Typically, these bonds are issued with call date and callable at the predefined call date. (Yield of perpetual bonds are therefore calculated upto earliest call date).

Which types of instruments are available for investment?

Taxable bonds/NCDs issued by PSUs, Banks, Corporates, NBFCs, Municipal Corporations and Financial Institutions

1. Government Guaranteed Bonds
2. Tax-free bonds
3. Government Bonds
4. State Development Loans (SDL)
5. Treasury bills (T-bills)
6. Perpetual Bonds
7. Fixed Deposits (FDs) of various corporates, PSUs and NBFCs
8. High yielding bonds
9. Zero Coupon/ Deep Discount Bonds
10. India Savings Bonds
11. Capital Gain Tax Bonds (54 EC)

What are the issuers in debt market?

The current issuers in the bond markets are:

1. Central & State Government (through RBI)
2. Public Sector Undertaking (PSUs)
3. Corporates
4. Banks
5. NBFCs
6. Financial Institutions
7. Municipal Corporations

Who regulates Bond Markets?

Bond Market is regulated by RBI & SEBI.

Where are these bonds traded?

Bonds are typically traded on recognised stock exchanges - BSE and NSE.

What is Face Value of Bond?

The face value is a security's nominal or stated value as determined by its issuer. In bonds, it represents the amount paid to the holder upon maturity also known as “par value”.
 

Are these bonds secured?

Bonds can be issued as secured or unsecured in nature depending on issuer's discretion.

Secured bond is a debt instrument that is backed by collateral or assets owned by the issuer. If the issuer defaults on the bond payments, the bondholders can claim the collateral and sell it to recover the owed amounts. 

Unsecured bonds, also known as debentures, are bonds that are not backed by any collateral or specific asset. Instead, they are only secured by the issuer's financial reputation and creditworthiness.

Please click on the  ‘view detail’ tab of the product to get information on nature of security of the bond. The term sheet and information memorandum of the bond have the required information mentioned.

Are these bonds guaranteed?

Not all bonds carry specific guarantee. However, there are some bonds which are issued with guarantee by either parent company or government or government owned companies.

How the bonds are issued?

The bond issuance process:

1. Bond issuance process varies based on bond type.
2. Corporate bonds are issued through private placement or through public issues.
3. Government bonds are issued through RBI auction mechanism.

Are these bonds listed?

Most bonds are listed on stock exchanges (BSE/NSE). Gsec / SDLs are issued by Government and thus considered as deemed listed bonds, and does not require any specific listing unlike bonds issued by corporate entities.

What is day count convention?

Day count convention is to determine the number of days between two coupon dates. Each product follows different day count convention to determine number of days between coupon dates.

Corporate bonds follow actual/actual day count convention wherein actual number of days between coupon dates are calculated.

While in case of Government securities- 30/360-day count convention is followed, where in days in every month (irrespective of 31 days or 28 days) is considered as 30 days and total no. of days in a year is considered as 360.

What is accrued interest? (What is holding period interest?)

Accrued interest is the interest on bond that has accumulated since the investment or since the previous coupon payment. In simple terms, accrued interest is holding period interest which seller of the bond take from buyer of the bond.

How will I get interest on bonds?

Interest amount is credited in the investor's demat linked bank account directly by issuer on pre-determined interest payment dates. The interest payment frequency may vary from monthly, quarterly, semi-annual or annually decided by the issuer. Except for government securities where the interest frequency is fixed as semi annual.

How is bond price determined?

The price of a bond is determined by discounting the expected cash flow to the present using a discount rate. Four primary influences on bond pricing on the open market are supply and demand, age-to-maturity, credit ratings and economic factors.

Are these bonds rated?

Yes, Bonds and Corporate FDs are rated by SEBI regulated rating agencies like CRISIL, ICRA, CARE, India Ratings.

What does a different rating imply? (Rating Scale)

Rating     Description

AAA         Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

AA           Instruments with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

A             Instruments with this rating are considered to have an adequate degree of safety regarding the timely servicing of financial obligations. Such instruments carry low credit risk.

BBB        Instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

BB          Instruments with this rating are considered to have a moderate risk of default regarding timely servicing of financial obligations.

B            Instruments with this rating are considered to have a high risk of default regarding timely servicing of financial obligations.

C            Instruments with this rating are considered to have a very high risk of default regarding timely servicing of financial obligations.

D            Default Instruments with this rating are in default or are expected to be in default soon.

Note: The modifiers + (plus) or – (minus) may be appended to the rating symbols to indicate their relative position within the rating categories concerned. Thus, the rating of AA+ is one notch higher than AA, while AA- is one notch lower than AA. (Source: Rating Agencies) 

What is the registration process?

One can register with The Fixed Income using (https://www.thefixedincome.com/register) and by verifying mobile number and email ID.

Can I apply for Bonds in Joint name?

 

Yes, if you have a demat account in joint name, you can purchase bonds in joint name.

How will I get my Interest on the Due date?

 

The interest shall be credited to the respective Bank account registered with the demat account through ECS on the due date for interest payment.

How’s the return on Bonds taxed for Resident Individuals?

 

There are two ways through which bonds are taxed for Resident Individuals:

1. Interest Income: This interest is taxed at applicable slab rates under "income fro  other sources" and TDS of 10% will be deducted as per amendment of section 193 – applicable from 1st April 2023, except for government and sovereign gold bonds and tax free bonds.
2. Capital Gains:  When an investor sells listed bonds in the secondary market, capital tax may arise- short-term capital gain/loss- if held for less than or equal to one year or long-term capital gains/loss- if held for more than 12 months, depending on the period of holding the bond. Short-term capital gains are taxed as per applicable slab rates. Long-term capital gains are taxed at a concessional rate of 12.5% without indexation benefits. 
    

Is the KYC (Know Your Client) process compulsory?

 

Yes, KYC is a regulatory requirement and thus, mandatory.

What is the minimum investment amount?

 

Minimum investment amount ranges between Rs. 10,000 to Rs. 10,00,000 depending on product type and underlying bonds.

Can I use my existing demat account for bond transactions as well? What if I don’t have a demat account?

 

You can use your existing demat account for investing in bonds. If you don’t have a demat account, then we will help you to open a demat account (https://demat.tipsons.com/).

When do I have to pay funds? 

 

Investors have to pay funds depending on the mutually agreed settlement date.

What if I fail to give funds on the pay-in date?

Investors have to give funds on mutually agreed pay-in/settlement dates and honour the trade.

Are the rates shown on the system fixed?

Rates shown on the system are indicative rates and it is subject to change based on market conditions.

What products are offered by The Fixed Income - (OBPP) ?

 

The current offering includes;

1. Secondary market Corporate Bonds including Tax-free bonds
2. Bond Public Issues
3. Sovereign Bonds (Government bonds such as G-sec or SDL)
4. Sovereign Gold Bond

How do I purchase bonds through The Fixed Income?

 

To purchase bonds from our website, you can;

1. Select your investment options from available offers. Click on ‘View Detail’ to get more information on offer or click on ‘Place Order’ to proceed for investment.
2. Once you place the order you will get an order receipt via email from The Fixed Income. You can view the order under the ‘Pending’ tab of ‘Order History’.
3. Post checking availability of quantum and current market level,  The Fixed Income will confirm the order. You will get confirmation/rejection email notification from  The Fixed Income. Accordingly, status under Order History tab will change to ‘Confirmed/Rejected’.
4. Trade confirmation slip (Deal confirmation) will be sent on your registered email id with your investment details.
5. Payment details will be available under ‘Order History’ once the trade status changed to ‘Confirmed’. Make payment as per the payment details reflected on system or on registered email. Post payment- the bonds will be transferred to your Demat account.

Can I sell bonds through The Fixed Income?

Yes, you can sell bonds through  The Fixed Income. There is an option to place a sell request  under the tab "Sell Bonds"  by filling ‘Bond Request’ form. Post request creation- a counter offer will be given to investor. (Please note that selling bonds will depend on demand-supply and market conditions.)

How do I make payment for investment?

We follow a standard payment process for investment based on investment types.

a. Corporate Bonds – Secondary Market Transactions

   For making payment towards your investment in corporate bonds;

• Transfer funds to ICCL (BSE).

For settling trade through BSE stock exchange the details will be available on the platform and also in the email sent. You have to make payment via RTGS/NEFT only to designated account of the Exchange through which you wish to settle your investment transaction.

Note: Kindly note that payment to Exchange can be made through RTGS/NEFT only and payment has to be made on settlement date only. When settling through Exchange, Exchange will transfer units of your investment directly into your demat account.

b. Government Securities – Secondary Market Transactions

You will have to make payment directly in Exchange designated account via RTGS/NEFT to settle your investment transaction in government bonds.

Note: You get credit for units in your demat account post settlement by the Exchange.

c. Corporate Bond – Primary Market (Bond IPO)

• One can apply in IPO through UPI from theFixedIncome.

Note: You get credit for units in your demat account directly by the Issuer if your bids/mandate are successfully accepted.

What happens to my bond basket if I need to withdraw my investment early?

If you need to withdraw your investment early, you may need to sell the individual bonds within the basket on the secondary market. Early withdrawal might be subject to market conditions and may affect the overall returns.

 Is there a lock-in period for investing in a bond basket?

Typically, there is no lock-in period for investing in a bond basket, but it is recommended to hold the bonds until maturity. However, individual bonds within the basket can be sold in the secondary market if needed.

How often can I invest in a new bond basket?

You can invest in a new bond basket whenever a new offering is available on the platform.

Is there any limit to the number of baskets that I can invest in?

 No, there is no limit to the number of baskets that can be invested.

What is the minimum investment required to invest in the bond basket?

The minimum investment required to invest in the bond basket is INR 3 lakhs.

After investing in the bond basket, can I sell an individual bond from the basket in the secondary market?

Yes, you can sell individual bonds in the secondary market after investing in the basket.

Are there any fees to invest in the bond basket?

No, there are no fees to invest in the bond basket.

How will the bond basket be reflected in my Demat account?

The bonds in the basket will be reflected individually in your Demat account; not as a basket because a basket is just a collection of bonds.

Will the returns for each bond in the basket be credited individually or consolidated monthly?

The returns for each bond will be credited individually to your registered bank account. It won’t be consolidated monthly.

 Is TDS applicable in bond baskets?

Yes, TDS is applicable in bond baskets and it is the same just as for single bonds. Since a bond basket represents a collection of individual bonds, the TDS rate for each underlying bond applies. This means the typical TDS rate of 10% for listed bonds would also apply to the interest earned on bonds in the basket.

Can I customize the bond basket?

No, the bond basket cannot be customized; it is fixed. However, you can connect your RM for specific requirements.

How do bond baskets help in portfolio diversification?

By including multiple bonds in a single investment, bond baskets spread risk across different issuers and sectors, thereby enhancing the stability of the overall portfolio.

How do I choose the right bond basket for my investment goals?

Consider your investment objectives, risk tolerance, and investment horizon. Different bond baskets cater to different goals, such as income generation, capital preservation, or growth. It's advisable to review the basket's composition before investing.

Can bond baskets provide regular income?

Yes, bond baskets can provide regular income through periodic coupon payments from the underlying bonds in a basket.

Are there any benefits for senior citizens on the Fixed Deposits?

Yes, senior citizens get extra benefits in the form of higher interest rates.

How is the interest on Fixed Deposit (FD) calculated?

The interest on a Fixed Deposit is a simple interest calculation depending on the FD duration and the prevailing interest rate when you open it. The calculation methods for interest differ based on the type of FD.

• Cumulative FD: Interest is calculated for each quarter and then added to the principal, with subsequent quarter’s interest calculated on this cumulative amount.
• Traditional FD with Quarterly interest payout option: Simple interest is calculated for each quarter and the interest is paid at the end of each quarter.

What are nomination facilities available on FDs?

Keeping in mind unforeseen events, banks, and other financial institutions provide nomination services for depositors. In the event of the depositor’s demise, the nominee is entitled to claim the maturity amount of the fixed deposit. However, the specifics of this process may differ.

What happens if the depositor passes away?

If the depositor passes away, the Fixed Deposit amount can be claimed upon maturity by the nominee.

What is a cumulative FD?

A cumulative fixed deposit (FD) is a type of fixed deposit where the interest is compounded and added to the initial principal amount. These fixed deposits come with maturities that can span from 6 months to 10 years.

Is there any auto renewal facility available on Fixed Deposits?

You have the option to choose auto-renewal when you open the fixed deposit while opting for E-FDR. After the application is processed- the auto renewal can’t be opted.

What is the frequency of interest payments on Fixed Deposits?

The frequency of interest payments is determined by the type of fixed deposit plan. In a cumulative plan, interest is compounded and paid out at the end of the deposit term, along with the principal. In a traditional FD, interest can be paid out on a monthly, quarterly, or other periodic basis according to the specifications of that fixed deposit.

Will I have to incur a penalty to withdraw FD before maturity?

Yes, if you decide to withdraw your fixed deposit before maturity, your bank or financial institution will offer you an interest rate that is reduced by a certain percentage depending on the issuer.