In a long list of things they don’t teach you at school, there happen to be “investing” listed in bold. And while they teach you how to add, multiply, and divide, they don’t teach you how to put it to use in the market, how to use those skills to make money.
Knowing how to buy bonds is a complicated process by itself. But it is worth the effort as bonds give you a brilliant way to round out a diverse portfolio. However, when you see people going from riches to rags, you wonder if bonds are essentially all that straightforward and reliable.
If you are willing to take a calculated risk with bonds, here are some things for you to know.
Ways to buy bonds?
- Broker: you can buy bonds through a broker on brokerage platforms. You can easily buy and sell these bonds with a minimal brokerage fee or you can even buy bonds from an investor who is willing to sell.
- Through ETF: Bond ETF is a low-risk investment that is ideal for investors who are looking for fixed returns at low risk. This is also ideal if you are looking to diversify assets and are highly liquid.
- From the government: Government bonds are the safest to buy as it helps investors invest in debt securities that carry a sovereign guarantee. Government bonds are usually issued by RBI and it helps the government to raise the money needed for various developmental projects across the nation.
How can I buy bonds?
- You have to have a Demat account.
- You can purchase bonds or debentures in primary issuance by filling up the application form given by the manager to the sub-broker to the lead manager.
If you intend to trade in secondary market trade, you would have no other way than to go through a broker.
How to sell bonds?
Most government bonds should ideally be sold after holding to its full tenure.
However, ideal time to sell bonds is as follows:
- When the interest rates are set to go higher: When interest rates are known to rise significantly, that is your biggest sign to sell your bonds. Any analyst or pundit will guide you about when it is the ideal time to sell your bonds.
- When the issuing entity seems to be unstable: Another brilliant signal to liquidate your bond holdings is to know if the issuing entity suddenly becomes financially unstable and suffers a huge loss that compromises its ability to remain profitable in the days to come.
- When the market price is high: You can keep an eye on the market and you can determine moments when the price of your bond soars sky-high. when you see your short term SMA cross through the long-term SMA, that’s your cue to sell your bonds.
You can easily sell your bonds through a broker or to a new investor who is looking to buy bonds in the market.
There is a lot that comes with understanding bonds and therefore, read all your documents carefully before taking the plunge. Bonds can be tricky, but if you tread well, it can be worth the risk.