ASSET-CLASSESM08

Bonds: Lending to Earn Interest

Learn how bonds work as an IOU where you lend money and earn interest, with lower risk but lower returns than stocks.

Learning Goals

  • Understand bonds as debt instruments with fixed returns.
  • Recognize the trade-off between safety and returns.
  • Differentiate government, corporate, and other bond types.

Core Concepts

Bond Basics
Beginner

A bond is an IOU. You lend ₹10,000 to a company or government, and they pay you interest annually for a set period.

Credit Risk
Beginner

A government bond is safer (lower yield) than a startup bond (higher yield required for risk).

Duration
Beginner

Longer bonds are riskier if interest rates change, so they offer higher interest to compensate.

Indian Market Context

Government Securities (G-Secs) and RBI bonds offer a safe haven for conservative Indian investors. Corporate bonds from HDFC and ICICI offer higher yields.

Hands-On Calculators

Future Value Calculator
Future Value₹3,10,585

Gain: ₹2,10,585

Real Return Calculator
Nominal Return12.00%
Inflation7.00%
Real Return5.00%

Behavioral Insight

🧠 SAFETY PREFERENCE: Humans over-weight safety and miss out on wealth-building equity returns.

From History

Bonds: Lending to Earn Interest

Those who held high-quality corporate bonds during the 2008 crisis slept well while stock investors panicked.

Take the Quiz

Module Quiz
A ₹10,000 bond with 6% yield means you earn?
Government bonds carry zero default risk.
Why do startup bonds offer higher yields than government bonds?