Will I be able to sell my bond?3 min read
Imagine this scenario , an investor has bought 30 Lacs worth of Government Bonds to save for his daughter’s wedding which might happen 5-10 Years from today. 6 Months into the investment, the pandemic hit, the investor lost his job and now he has to dip into his savings to make ends meet and provide for his family on a day to day basis. At such a time, he wonders whether the 30 lacs invested in the Government bonds could be withdrawn/sold.
This is a common doubt any investor has when they make any investment decision. Will the investor have an out if things don’t go as per plan.
Most common reasons for wanting an out of an investment are:
- Money required for an emergency
- Current investments not showing the intended returns
- Better investment opportunities and returns elsewhere.
- Lack of knowledge about the current investment creating jitters to the investor.
- When you invest based on a trusted tip from someone and that relationship goes sour.
No matter what the reason is for wanting an out, an investor has to make sure the option for getting an out is available and easily accessible. For example, when an investor looks at investing in a Fixed Deposit , he knows that any day he would be able to break his FD and get his money back most likely at a cost. Or when he invests in a Mutual Fund, he can put in a request to redeem his investments and the money will show in his account in a day or two. On the other hand , there are investments such as real estate , where the time and cost to offload/sell an investment is considerably higher than most investments. This term in investment is referred to as liquidity risk. An Investment is considered more liquid if it is easily sellable and less liquid when one has to spend a lot of time and money to sell one’s investment.
So , now coming to the main point , at what end of the spectrum do bonds lie. Well as an investment , bonds get bought and sold very similar to how shares are traded where for a trade to happen there has to be a buyer and a seller on the exchange. In terms of comparison , bonds are a little less liquid than Fixed Deposits and Mutual Funds and therefore provide an extra compensation in terms of interest to people who would want to own them. However they are a lot more liquid than an investment in property. However , as more and more people would start investing in bonds, this factor would improve and they would become as liquid as FD’s, MF’s and Shares.
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