Personal Finance Explained: How are bond investments taxed? Updated : August 22, 2020 05:07 PM IST Bonds are a type of investment that results in an investor lending money to the bond issuer in exchange for interest payments. In simpler terms, bond investments work like a formal contract where borrowed money is repaid with an interest at fixed intervals. There are various types of bonds available with different duration, coupon rates and lock-ins. Subscribe to Moneycontrol PRO at just Rs.33/- per month for the first year. Use code SUPERPRO. Limited period offer. Available on Web and Android.