I usually start with a small thought experiment. If a business owner I trust needed money to expand a factory and offered to pay me interest every quarter, with a written promise to return my money after a fixed number of years, what would I call that arrangement? In markets, that same idea is called a bond. So when someone asks me what is a bond, I describe it as a structured, documented “you lend, they repay” agreement—simple in concept, powerful in practice.
A bond is issued by an organisation that wants to borrow money. The issuer could be the Government of India, a PSU, a bank, or a private company. As an investor, I lend them money for a defined period. In exchange, the issuer commits to two things: periodic interest payments (the coupon) and repayment of the principal on a specified maturity date. This “schedule of payments” is what gives bonds their reputation for predictability—provided the issuer remains financially sound.
To make bonds feel less abstract, I break them into four pieces. One is the principal (often called face value), which is the amount that comes back at maturity. Second is the coupon, which is the interest rate used to calculate periodic payments. Third is maturity, the length of time my money is locked in. And fourth is market price, which is where many investors get surprised. The coupon is fixed, but the price can change, because the market constantly reassesses interest rates, issuer risk, and liquidity. A bond can be a steady income instrument and still move in price in the interim.
Once the basics are clear, I like to separate bonds by “why they exist” rather than by jargon. Government securities are often used for stability and tend to have lower credit risk, though they can react to interest rate changes. Corporate bonds are used by companies to fund growth or refinance debt, and they may offer higher yields, but they demand more credit understanding. Some bonds are secured, meaning there is some form of collateral backing, while others are unsecured. Some pay a fixed rate coupon, and others pay a floating rate coupon that resets periodically. Different structures exist because different issuers and investors have different needs.
When I evaluate any bond, I focus on three practical risks. Credit risk is the obvious one: can the issuer continue paying interest and repay principal on time? Ratings help, but I also pay attention to financials, leverage, and business quality. Interest rate risk is about price movement—if interest rates rise, older bonds generally become less attractive and their prices can fall. Liquidity risk matters if I might need to exit early; not every bond trades actively, and selling in a hurry can mean compromising on price. This is the real-world version of what is a bond: it is a contract, but it lives inside a market.
If someone then asks how to buy bonds, I suggest a step-by-step approach that keeps emotions out of it. First, I define the purpose: monthly income, a known future expense, or simply portfolio balance. Second, I match the bond maturity to that purpose, because the time horizon is a risk-control tool. Third, I shortlist issuers and structures that fit my comfort level—coupon frequency, fixed versus floating, and any special features like call options. Fourth, I look at yield and, importantly, taxation, because the return that matters is what stays in my hand after tax.
To me, bonds are not “boring.” They are disciplined. When I respect the issuer’s quality, choose a tenure I can live with, and understand what might move the price, I get something valuable: a calmer, more planned experience of investing—one that can sit alongside equities rather than compete with them.
