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List of Short Term Bonds

Short-term bonds mature in one to three years. They carry pre-determined coupon rates and are less risky than stocks and equity. These bonds can be in the form of certificates of deposits, commercial papers etc. On maturity, the bond issuer will pay the principal investment, which is the face value of the bond and interest earned during the bond's tenor. Also, since the maturity is within a short-term time horizon, there is a lesser probability of unpredictable events, which may translate into default risk by the issuer.

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NameIssue SizeMaturityCoupon
Mas Financial Services LimitedCARE A+INE348L0716750.00Cr16 Jul 20258.60 %
Marwadi Finlease Private Limited-INE0LND07011100.00Cr16 Jul 202511.50 %

Who issues the Short Term Bonds?

Short Term Bonds can be issued by the government, corporations, fund houses or any other entity. These entities raise capital and finance their ongoing projects by issuing the bonds. The issuance of bonds also ensures a balance in the capital structure. The debt carries a lower risk and does not dilute the existing ownership. They also provide tax benefits to the issuer, unlike equity. Government bonds are sold online and deposit payments electronically.

How do Short Term Bonds work?

Short-term bonds mean lower risk for the investors, and therefore, they earn lesser returns than long-term bonds and equity since the money will not be invested for a longer period. Longer periods involve the risk of higher inflation which could reduce the overall return from the bond. The greater risk that overall interest rates could cause the bond’s price to fall.
Hence the returns on the bond depend on the duration of the time until maturity and the current interest rates. When interest rates are increasing, short-term bonds offer higher liquidity.

What are the features of Short Term Bonds?

Short Term bonds have the following features:-

  • They offer fixed rates of return. 
  • The tenor of the bond ranges between one to three years. 
  • The coupon payment can be periodic during the bond's tenure or at the time of maturity.
  • They offer higher liquidity since the maturity of these bonds is in the near future. 
  • Short Term bonds are less sensitive to interest rate changes. Although they are less sensitive to interest rate changes yet they can have credit risk. 
  • The bonds have a credit rating assigned to them, enabling the investor to make an informed decision. 
  • Investors can earn income from bonds through capital gains and interest.
    • The Capital gains are the difference in the Sale price and Purchase price of the bond (other than zero coupon bonds), and if these are held for less than 36 months are taxable as Short Term Capital Gains; these will be taxed at the rates applicable to the assessee.
    • The Interest received on the bonds will be taxed as Interest Income under the head “Income from other Sources.”

Advantages of Short-Term Bonds

  • Short-term bonds minimise the systematic risk attributable to inflation and interest rate fluctuations. A shorter duration reduces the probability of an unpredictable event. 
  • These bonds are highly liquid since they are less volatile, and the investors can get their money back on the redemption from the issuer on maturity. These bonds can also be sold before maturity. 
  • They are graded based on the credit rating and therefore carry lower default risk from the issuer's perspective making it more reliable and credit-worthy for investors to invest. 
  • These funds can be used as emergency funds as they have shorter maturity periods.

Disadvantages of Short-Term Bonds

  • Short-term bonds offer lesser returns as compared to long-term bonds and equity. 
  • Credit Ratings can change during the tenure of the bond. Credit ratings do not immune bonds from default risk altogether.

How to calculate the yield of the Short-term Bond?

The yield  the bond is different from the coupon rate. The yield assumes the interest payments received will be reinvested at the coupon rate if the bond is held up to maturity.
For example: If the bond is priced at ₹920 and the face value of the bond is ₹1000. The annual coupon rate is 10%. Hence interest is paid ₹100 annually, and there are 2 years left until maturity. The Yield to maturity will be equal to 14.92%.

Who should invest in Short Term Bonds?

Since short-term bonds generate limited returns they should be incorporated in order to diversify the portfolio. They are ideal for investors who have low-risk tolerance and are afraid of capital erosion. Since they are highly liquid they are more lucrative for the investors who prioritise liquidity over returns. They are ideal for investors who want steady income along with capital preservation.

FAQs about Short Term Bonds

How can I buy bonds?

The bonds can be bought online as well as offline. The online purchase of the bond requires a DEMAT account. In offline purchase, a certificate of holding is issued to the investor.

How can I sell my bonds before the maturity date?

The bonds can be sold on the BSE/ NSE site before they mature. There are many online sites that can help to sell bonds.

Do bonds generate better returns than Fixed Deposits?

Bonds generate higher returns than fixed deposits since there are no restrictions like Cash Reserve Ratio.They can generate a steady source of income which is tax efficient than Fixed deposits. Further Bonds are tradeable, while fixed deposits are not.
Disclaimer: The facts and information on this page are for information and awareness purposes only. No information provided here is intended towards any specific user and should not be construed as investment advice or a recommendation of any kind whatsoever. You are requested to consult with your professional investment advisor or tax advisor for specific directions on any investments in any securities including the bonds mentioned on this page before making any investment decision. Wint Wealth shall not be liable for any losses incurred by you based on an investment decision utilising the information on this page.