Everything You Need To Know About Bond | Motilal Oswal

Everything You Need To Know About Bond

Are returns earned from my bond investment taxable?

Yes, bond investments in India are subject to taxes.

  • Government bond interest income is taxable at the investor's regular income tax rate, with no TDS deducted.
  • Corporate bond interest income is also taxed at the regular rate. The issuing company also deducts TDS at the applicable rates.
  • Capital gains from selling bonds are taxed differently based on the holding period. If sold within 36 months, it is considered short-term capital gains and taxed at the regular rate, plus cess and surcharge, if applicable. If held for more than 36 months, it is treated as long-term capital gains and taxed at a lower rate.

Open Trading Account and Start Trading!

However, the tax treatment for specific bond investments of persons can vary based on factors like bond terms, income tax bracket, and residency status. Seeking guidance from a tax advisor is advisable for personalised advice.

How to determine your DP ID and Client ID?

To find your DP ID and Client ID, follow these steps:

  1. Contact your Depository Participant: The DP is the entity through which you have opened your demat account. Reach out to your DP's customer service or support team.
  2. Provide necessary details: Provide the required information, such as your name, account number, and any other identification details requested by the DP.
  3. Verification: The DP will verify your details to ensure your ownership of the demat account. This may involve sharing personal identification documents or answering security questions.
  4. DP ID: Once the verification is complete, the DP will provide you with your unique DP ID. This is a unique identification number assigned to the DP with whom you hold your demat account.
  5. Client ID: After receiving your DP ID, the DP will also provide you with your unique Client ID. This identifier distinguishes you as an individual client within the DP's records.

How will I receive the interest payment?

The bondholder's bank account linked to their Demat account will receive the interest payment according to the predetermined schedule. This payment, which represents the interest earned on the bond, will be directly credited to the designated bank account of the bondholder. The Demat account, which serves as a digital repository for holding securities in an electronic format, acts as the intermediary for facilitating this transaction.

By associating the bondholder's bank account with their Demat account, the interest payment process becomes streamlined and convenient. The predefined schedule ensures that the interest payments are made in a timely manner, allowing the bondholder to receive the accrued interest at regular intervals. Overall, this arrangement simplifies the payment process and provides the bondholder with a hassle-free experience, as the interest payment is automatically credited to their bank account linked to the Demat account.

Once a Bond matures, how do I get my money back?

When it comes to Bonds/Debentures, the money invested is automatically remitted to the investor's bank account on the date of maturity. This process is automated and ensures that the investor receives their investment amount without any delay or inconvenience.

Bonds and debentures are fixed-income securities that pay a predetermined interest rate to the investor. They have a specific maturity date, which is the date on which the principal amount is repaid to the investor. The process of remitting the investment amount into the investor's bank account is seamless and hassle-free, eliminating the need for any manual intervention. This system ensures that the investor receives their investment amount on time and without any complications.

It is important to note that the investor must provide accurate bank account details to ensure that the remittance process is successful. Overall, the automated remittance process for Bonds/Debentures provides a convenient and efficient way for investors to receive their investment amount.

When will I receive bond units in my Demat?

Upon confirmation of your order, the bond units will be promptly credited to your Demat account on the next trading day, referred to as T+1 day. This means that within one business day, after your order is confirmed, the bond units will be successfully transferred and reflected in your Demat account.

It is important to note that the T+1 day may vary depending on the exchange and the settlement cycle. This process ensures a swift and efficient allocation of the bond units you have purchased. By adhering to the T+1 day timeline, the transaction is promptly executed, allowing you to have ownership of the bond units without delay.

Your Demat account serves as a secure digital repository for holding your securities, including the bond units, in an electronic format. This arrangement simplifies the post-order process, enabling seamless transfer and easy tracking of your bond units, ensuring that they are promptly credited to your Demat account on the next trading day.

Where will I receive my interest payment?

The interest payouts from Bonds are credited to the bank account of the bondholder that is linked to their Demat account. This automated process ensures that the bondholder receives their interest payment without any delay or inconvenience.

A Demat account is an electronic account that holds securities, such as stocks, bonds, and mutual funds in an electronic form. It eliminates the need for physical certificates and provides a secure and convenient way to hold and trade securities. By linking their bank account to their Demat account, bondholders can receive their interest payments directly without any manual intervention. This system ensures that the interest payment process is streamlined and efficient, providing a hassle-free experience for bondholders.

It is important to note that the bondholder must ensure that their bank account details are accurate and up-to-date to ensure that the interest payment process is successful. The automated interest payout process for Bonds provides a convenient and efficient way for bondholders to receive their interest payments.

Why Do I need to pay accrued Interest?

When you trade, especially in the bond market, there are times when you'll have to pay some cash for accrued interest. Accrued interest is that portion of interest on a bond that has piled up since its last interest payment date.

When you buy a bond, you're entitled to receive interest payments based on the bond's coupon rate. However, if you buy the bond between interest payment dates, the person selling it has held onto it for part of the interest period. Thus, he deserves compensation for the accrued interest during that time.

Paying accrued interest ensures a fair deal for both the buyer and the seller. It considers the time value of money and compensates the seller for the interest they would've earned if they kept the bond until the next interest payment date.

Paying accrued interest in trading ensures that the buyer and seller get their fair share of interest based on how long they held the bond.

Why is the yield different from Coupon?

The coupon rate and yield are distinct concepts related to bonds.

The coupon rate represents the fixed interest rate on a bond, determining the regular interest payments. On the other hand, yield reflects the actual return an investor will earn, considering the bond's price and market factors. The yield can deviate from the coupon rate due to several reasons. When a bond's market price surpasses its face value, the yield will be lower than the coupon rate and vice versa. Changes in interest rates also influence the yield; elevating it with rising rates and reducing it with declining rates.

The time until maturity and the credit risk associated with a bond are significant factors that affect its yield. Longer-term bonds tend to offer higher yields compared to shorter-term bonds, reflecting the time value of money. Additionally, bonds with higher credit risk typically provide higher yields to compensate investors for the increased likelihood of default. 


Related Articles: The Benefits of Investing in Bonds | Is it worth investing in sovereign gold bonds? | What are tax-free bonds and how they work

  • Open your FREE Demat Account in 5 Minutes
Select State
Select City
By submitting your details, you are authorising us to call you or send promotional communication even though you may be registered under DND