Premium bonds, also termed “”premium bonds”” in India, are investment instruments issued by the Government of India. The term refers to a unique type of saving scheme, which guarantees both conservation of capital as well as possibly increased returns on investment.
### Principle of Premium Bonds
Mostly, the principle in which premium bonds work is that there is no fixed interest on premium bonds. On the bond purchase, the investor is entitled to a prize through lucky draws every month. Such prizes are several amounts, the highest of which is ₹1 crore. Every bond comes with a unique number, which will be selected during the draw.
### Method of Investment
In order to invest in premium bonds, at least ₹1000 needs to be invested. Even people can buy any number of bonds at one time, but can hold a maximum of ₹50,000. After this, draws are held every month for the bonds, whose numbers are drawn in the draw-wins the prize. Investors need to note, though, that there is no fixed income for these bonds, and entirely it depends on lucky draw.
### Benefits of Premium Bonds
1. **Savings and investment combinations**: Premium bonds having a very cheap and safe investment instrument give opportunities to people to grow their savings.
2. **Tax-free benefits**: The prize is tax free as it comes under premium bonds; it allows the investors to avail these benefits without thinking of tax liabilities.
3. **No risk is involved**: The amount of investment is safe as it is one of the Indian government instruments.
4. **Flexibility**: Investors can encash their bonds at any moment as they get.
### Disadvantages of Premium Bonds
1. **No interest**: The given bonds do not carry any fixed interest; therefore the investor should not expect any fixed return from the investment.
2. **Price uncertainty**: Sometimes the draw may take too long before bringing a prize, resulting in some disappointment.
3. **Lottery like element**: It is purely dependent on lucky draws and thus becomes like a website lottery that some people may not want.
### Are Premium Bonds Good for You?
Premium bonds are more for the kind of person who likes a little buzz at little risk, and who wants a bit of excitement through investing. If you’re not thrilled by the thought of regular interest, and are okay with not knowing just when you’ll get a prize, premium bonds may well suit you.
### Conclusion
Premium bonds are easy and safe, while at the same time giving an opportunity to win a large prize. You have to keep in mind your investment goals as well as your risk tolerance before you purchase these. Whenever you invest in them, you should be completely clear about your expectations.
Through these bonds, your savings can be secured for better returns in the future. One needs to have a correct understanding with some patience.