Investing in a bond portfolio for retirement planning

You are currently viewing Investing in a bond portfolio for retirement planning

Retirement is the reality of life. No one can run away from the cycle of life. The early you plan the better returns you can expect from your savings or investments. During the golden days (old age), it becomes difficult to do hardships to earn living. Life becomes struggling if you do not plan your retirement and invest wisely. The amount required to enjoy your retirement depends on varied factors.

You need to save funds considering your lifestyle, liabilities, social and personal responsibilities, and others. The choice of investment avenues is necessary for the best returns. The returns offered by the different avenues varies because of many considerable factors. Hence, one should choose the best suited investment avenue that meets your expectations. Among the few fixed income securities, bonds are a popular option. People are found googling answer to the question why to buy Bonds for long term in India. It has become preferred option not only for the retail investors but also for the institutional investors in India.  

Why Bonds always selected for early Retirement planning?

Since early retirement planning is a responsible decision, you need to plan well. A hasty decision can not only result in disappointment but also can make you experience monetary loss. Although interest and inflation continued to rise in the current year, there is no substitute to better than bonds for retirees. Let us here learn why bonds are always selected for early Retirement planning in 2022 by the individuals in the country. 

There are a number of good reasons that make bonds an attractive instrument. It has many irresistible features. Let us first learn about features of bonds. 

7 Key Features of Bonds Investment

1. Face value – is the minimum value at which a single unit of bond is issued. A bond is issued with a minimum face value of Rs. 1000/- to Rs.10,00,000/- in India.  

2. Coupon rate – a firm that issues bonds is liable to pay a fixed rate of interest to a bondholder which is termed as Coupon rate.  

3. Coupon frequency – is the interval at which the agreed coupon is paid to an investor in bonds which can be monthly, quarterly, half-yearly, annually and cumulative in nature. The interest rate can either be fixed or floating.  

4. Maturity – Each bond issued by an organization comes with a maturity. The maturity can be short-term (1 – 5 years), intermediate term (5 – 12 years), and long-term bonds (over 12 years). 

5. Issuer – is the entity that issues Bonds to raise money to fund ongoing or upcoming projects, business operations, business expansion, and more. For example, central government, state governments, corporates, and public sector undertakings (PSUs). 

6. Credit Rating – is the rating given to an issuer by the authorized rating agencies based on the creditworthiness of an issuer. Bonds with AAA rating are considered safe and a bond with minimum risk of default. 

7. Bondholder can be an individual or an institution in India who owns bonds. 

7 Key Features of Bonds Investment

Below are the Advantages of choosing bonds for early Retirement planning

1. Higher returns – Bonds are known to render higher returns on your investment. The returns in bonds generally range between 7 to 14%. The rate of interest varies based on the maturity period and the issuer type.  

2. Fixed and predictable income – The income in bonds is fixed and predictable. It can help you plan your goals well including retirement. A fixed income whether has its own advantage. Based on your predictable income, you can plan your further investments considering your fund need for retirement. 

3. Tax benefits – tax is also a big concern for many investors as it impacts your returns. The income derived after deducting tax is the actual returns that can be considered. Most of the investment avenues in India attracts tax to be paid. There are some bond types that are known to provide tax benefit. The interest income earned has tax exemption. Tax-free bonds are the bonds having the tax exemption feature preferred for its tax-free feature. Tax exemption or a minimum tax can help you generate more income helpful in creating surplus for your early retirement not only in 2022 but anytime you plan. 

4. Capital protection – investment in an investment avenue having risk of capital is not recommended for investors planning retirement. It is a promising idea to have a look on the list of best bonds for retirement planning for a better early retirement planning. It is necessary for you to ensure you invest in an instrument that guarantees you capital protection. 

Bonds specially government bonds come with sovereign guarantee that features total capital protection. The advantage of capital protection is also a key reason why Bonds always selected for early Retirement planning in 2022 as a good option.   

5. Liquidity – it is the feature that makes an investment instrument attractive and a desirable choice for the retail segment investors. Bonds are preferred for its liquidity that allows you to sell bonds as and when required. You can buy bonds or sell bonds in the secondary market to reinvest the gained amount in other bonds yielding better returns. Higher the returns better you can plan your retirement expenses.  

6. Risks – the risk for investors is a matter of concern. Expert advice you to consider risks seriously as it can have a significant impact on your financial goals. You can seek guidance on which are types of Bonds to buy in 2022 that can help you avoid risks or minimize risks. Consider buying bonds with higher ratings. Bonds with AAA rating are considered risk-free bonds.  

Also Read: What are Government Bonds and its advantages?

Share and Enjoy !


Leave a Reply