Question

Why are government bonds attractive as part of a balanced investment portfolio? How does the tax treatment of certain types of government bonds affect their attractiveness to certain types of investors?

Answer 1

Government bonds are risk free as it is issued by the government.Many investors includes bonds in their portfolio as a source of diversification to help reduce volatility and overall risk of portfolio.The tax benefits,return and the security provided by the government bonds make it one of the most attractive arrays for investors.

Some bonds are desingned for the investors who desire to save tax and at the same time to earn profit on their investment.While others found higher return on investment attractive as they are under lower tax slab.Investors on whom higher tax is applicable shows their interest on tax saving governmet bond,while others prefer higher return yield bonds.