How Much To Invest in Perpetual Interest Bonds?
Investing in Perpetual Bonds Means Earning At A Fixed Rate On A Regular Basis. Since These Bonds Have No Maturity Date, Income Can Be Earned Over A Long Period of Time. The Return On This Bond Investment Is Quite Good As Compared To Other Investment Avenues In The Market.
Questions: Have Your Own Business. Age 39. Monthly Income Is Around 40 Thousand. Wife (38) And Children (10) In The Family. Monthly Expenses Are About 25 Thousand. Total Savings Is About 65 Lakhs. Life insurance is 25 lakhs. Want To Invest In Perpetual Interest Bonds. How Much And Where To Invest?
Financial Advisor Answers:
Perpetual Bonds Generally Refer To Bonds That Borrowers View As Permanent Loans. In Return, Regular Interest Is Paid To The Buyers. Hence it is Considered As A Permanent Regular Income Avenue For Investors. This Type of Bond Is Also Often Considered Equity. By its Nature, Perpetual Maturity Bonds Have No Maturity Date. Like Most Other Bonds Issues Coupons To Investors For Interest Payments. Which Is Actually Interest On The Loan. However, These Bonds Have No Redemption, Repayment Date. Bonds That Can Be Redeemed Over A Fixed Period Of Time Are Known As ‘Callable Perpetual’ Bonds.
Where To Buy Perpetual Bonds?
Usually Banks Or Government Agencies Issue These Bonds In The Market. Investors Buy Bonds In Order To Have Access To Guaranteed Income Until They Decide To Redeem The Bonds. The Company That Issues These Bonds Is Not Liable To Repay The Principal Amount. His Liability Is Limited To Paying That Interest Amount.
Advantages and Disadvantages of Perpetual Bonds
Investing in Perpetual Bonds Means Earning At A Fixed Rate On A Regular Basis. Since These Bonds Have No Maturity Date, Income Can Be Earned Over A Long Period Of Time. The Return On This Bond Investment Is Quite Good As Compared To Other Investment Avenues In The Market. Let’s Discuss Some Advantages And Disadvantages Of Perpetual Bonds.
Advantages of Perpetual Bonds
India is Quite Remarkable In Providing Return On Investment In The Form Of Interest Through Perpetual Bonds. In The Case Of Perpetual Bonds, The Investor Can Receive Coupon Payments Indefinitely. Perpetual Bonds Are A Major Source Of Income For Fixed Income Investors. However, Perpetual Bonds Are Vulnerable To Interest Rate And Credit Risk. But If We Consider The Overall Risk, Its Risk Is Quite Less Compared To Equity Risk. If The Company Becomes Insolvent, The Investors Of Such Bonds Have Priority In Getting Their Money Back.
Disadvantages of Perpetual Bonds
It May Be That Many Investment Avenues in The Market Are More Profitable Than Such Bonds. So If You Invest In Such Bonds, You Might Be Missing Out On A More Profitable Investment Path. But That Is A Cost In Theory Of Savings. The Cost Of Losing More Profitable Investment Opportunities. There is Another Risk In This Bond. The Bond Can Be Redeemed By The Issuer After A Certain Period Of Time And Perpetual Bonds Usually Have Inflation Risk. That is, The Promise Of Interest That You Put Money Into, The Real Rate Of Interest Has Gone Down Due To Inflation. So Many Prefer To Invest In Term Bonds To Avoid Losing Real Income Due To Inflation.
Tax on Perpetual Bonds
The Annual Coupon Of The Perpetual Bond is Added To The Total Income Of The Investor And Taxed According To The Income Tax Bracket To Which The Individual Falls. However, if The Bond Is Sold In The Secondary Market And The Investor Makes A Long-term Capital Gain (After A One-year Holding Period), Then Long-term Capital Gains Tax Is Not Available. Income is Taxed At The Rate Of 10 Percent. So Fixed Debt Should Be One Of Several Investments Rather Than Being The Only Source Of Income From Your Savings.