Bond vs PPF! Investing your hard-earned money? Why you must check these points first, say experts
Bond is a word coined by the corporate world. In fact, the PPF is also a bond through which the government of India takes a loan from an individual.
Bond investment is one of the most preferred investment options among the Indian millennials. Though these investors hesitate to take a higher amount of risk, if they check some points while making a bond fund investment decision, they can enhance the chances of better returns and face lesser chances of default. As per the investment experts, a bond is not an investment, it's a loan taken by the issuing owner of the institution whose bond is being preferred by the investor. An institution goes for a loan via bond route only when the customary source of loan is not available to the owner or the available loan from the traditional source of loan is at a higher rate of interest, which it can't afford. So, bond fund investment is by default risk-involved investment and hence the rating of the issuing company is one of the important points that an investor must check before pumping his or her hard earned money in it.
Speaking on the risk factor involved in bond funds or company bonds, Manikaran Singhal, a SEBI registered investment expert said, "Bond is a word coined by the corporate world. In fact, the PPF (Public Provident Fund) is also a bond through which the government of India takes a loan from an individual. The Corporate Bonds or Company Bonds also falls in the same league where a company is taking a loan from an individual to generate money for the company." Singhal said that Company Bonds are subject to the market performance of the company and the better the credit rating of the company, the lesser would be the chances for default.
Jitendra Solanki, SEBI registered investment expert, explained, "When an individual goes for bond investment, he or she should find the rating of the corporate whose bond they are going to buy. Credit ratings are being issued by various credit rating agencies, which is available in just one click in Google." he suggested investors invest in AAA rating company bonds that have lesser chances of default as one can expect return only when the financial health of the company is sound.
For those who want a better return than PPF and ready to take the risk involved in the company or Corporate Bond investment, Singhal said, "Any return which is higher than PPF in bond investment involves risk factor. In PPF, you are assured about your return as the government won't default while in case of Company Bonds, the credit rating can change the rating of the company post-investment as we witnessed recently in the case of Yes Bank. but, bond investment is still an option which gives around 8 to 9 per cent of annual return, which is around 1 per cent to 1.5 per cent higher than the PPF return, which attracts people to invest in Corporate Bonds." He advised investors to invest in Company or Corporate Bonds for short-term period i.e. around 3-5 years to get better returns from a PPF investment.