Why bonds are the best investment option in 2022

Why bonds are the best investment option in 2022?

Bonds and Interest Rates are joined to the hip and 2021 was not regarded as a stellar year for this instrument. The prices have been falling more so now after the announcement of increase in Fed Rates. The Federal Reserve is likely to begin raising interest rates in 2022, potentially raising bond yields and lowering bond prices.

Read also- How to profit from rising interest rates.

Indian central bank is expected to follow and prices can fall in the domestic market as well.

You can make money from bonds in two ways only a) by holding it till maturity or b) by waiting when interest rates are low and prices (which are inversely related) are high and then selling it.

Thus, one can look at purchasing different types of bonds such as tax free bonds, corporate bonds, government bonds and zero coupon bonds in the coming year.

Here is one look at why bonds are the best investment option in 2022.

1. Protects the portfolio against the inflation Investors worry that high inflation will abrade the value of money they receive from investments. Inflation is outpacing the increase in household income and is impacting consumer confidence badly.

Surging inflation is negatively impacting the Indian economy as well. Bonds such as government bonds, corporate bonds and zero coupon bonds mitigate the impact of inflation on the profit earned by investors.

When inflation rises, interest rates rise, and bond prices fall. Investors can hedge the immediate effect of inflation by investing in short term bonds.

When interest rates rise, an investor can buy bonds online for shorter maturity that enable investors to roll over the bonds frequently at higher interest rates.

2. Tax Benefits

There are multiple types of bonds in India. An investor can avail of the tax benefits by investing in tax saving bonds and tax-free bonds. An investor can invest in bonds online and earn interest on them. An income-tax department provides the tax-benefit on earned interest under Section 80CCF. Infrastructure bonds give interest 8–9% p.a usually. An investor can invest in the secondary bond market and reduce his taxable income by Rs. 20,000 in a year.

3. Green bonds: a new investment option Under Budget 2022, the Government of India(GOI) is planning to issue sovereign green bonds with tax benefits. Green bonds proceedings are used to finance environmental and sustainable projects. Investors can invest in green bonds and enjoy the tax-free interest amount and contribute to the growth of the nation as well.

4. Lower credit risk Low-risk profile investors worry about credit risk associated with their portfolios. An investor can invest in bonds online and get relief from fear of default risk/credit risk.

Know — Why to invest in higher rated bonds.

These bonds are either issued by the government of India, banks, or corporate houses. These corporate houses have goodwill in the market. The issuer of bonds promises to repay the principal amount with the interest amount after a specified period. Investors are relaxed after investing in this investment option.

To know more Bonds related terms, head over to Bondspedia.

Conclusion For an investor, fixed regular income and market-linked investments play a major role in wealth creation. An investor can take wise steps and put his money in investment bonds and fix his returns from market-linked investment options.

Government bonds are the top bonds to invest in India. They can be less affected by inflation. Market-linked other investment options may be affected by the mark to market(MTM) losses but bonds usually provide better returns to investors. Usually, investors get confused about how to purchase bonds in India. An investor can buy bonds online and secure his principal amount and earn interest as well.