⌘KBonds are trade on NSE and BSE exactly like equity. Login to your broker account, search for a particular bond and buy/sell just like equity. No new account or documentation is needed. You can access thousands of bonds with full transparency, guaranteed settlement, and real-time price discovery on the exchange.
The entire bond market is regulated by SEBI. Bonds are independently analyzed by SEBI-registered agencies (such as CRISIL, ICRA, CARE) that assess credit risk. Higher rated bonds carry lower risk, whereas lower-rated bonds offer higher yields but with higher risk. Government bonds are considered safest.
No, bonds can be sold on the exchange just like equity. You can sell your bonds anytime before maturity.
A bond is a fixed income instrument, similar to a fixed deposit opened with banks. When you open a fixed deposit you are giving money to a bank that pays regular interest and returns the principal at maturity. When you purchase a bond from a company or the government (issuer of the bond) they pay regular interest and principal. A bond is nothing but a loan given by the investor to the issuer, which is raising debt to finance its operations. The company or government that issues the bond is known as the issuer and the investors who invest in the bond are known as the bondholders or debtholders. The issuer pays the interest to the bondholders till the time of maturity of the bond, following which the entire principal is returned to the bond holder.
No difference, they are the same.
Both are fixed income instruments that pay regular interest and principal at maturity. However, fixed deposits are a one-to-one relationship between the investor and the deposit taker (usually a bank). If you want to amend the fixed deposit, break it and withdraw money then you have to go back to the same bank. The bank usually charges some penalty for closing the deposit before maturity. Bonds on the other hand are tradable instruments. Once purchased, it is not necessary to hold a bond till maturity. You can sell your bonds to another investor through the exchange (NSE & BSE) just like stocks. The new bondholder will thereafter receive the interest and principal from the bond issuer. There is no penalty on selling your bonds. The price of the bond is dependant on prevailing market conditions. Investors may see some capital gains or losses when they sell their bonds.
Bonds thus behave like fixed deposits but can be traded like equity. Bonds are held in demat accounts, just like stocks. The interest and principal is directly deposited into your bank account. Proceeds of bonds sold on the exchange are settled on T+1 basis.
Bonds and FDs are both low-risk securities. Still, you should choose Bonds over Fixed Deposits because:
Corporate Bonds provide higher interest returns than FDs, typically 8-14% for corporate bonds versus 5-8% for FDs.
Government bonds provide higher safety than FDs (especially over an amount of 5 lakhs) since they are backed by the government, but their returns are relatively lower at 6-7%.
There is a large variety of bonds available (over 10,000 listed bonds) across a wide range of returns (6-14%), safety (rated AAA to D), tenure (0 to 40 years), interest payment frequency (monthly, quarterly, annual, cumulative). FDs are usually offered in a small band of returns (5-8%) and tenure (0-5 years).
Bonds are tradable, but FDs are not.
Bonds can satisfy various financial requirements like generating a regular income stream, savings tax on interest income, savings tax in capital gains. FDs offer no such facility.
Debt mutual funds collect a pool of money and invest in a portfolio of bonds. This is similar to equity mutual funds which collect a pool of money from investors and invest in a portfolio of stocks. There is no taxation benefit of investing in debt funds versus direct investment in bonds. Investors are better placed to directly invest in bonds to earn higher returns than debt mutual funds.
Anyone above the age of 18, who wants to earn fixed returns or regular income but is unsatisfied with fixed deposits or debt mutual funds should explore bonds. Also, investors who want to earn high returns but fixed (not subject to market fluctuations like equity, F&O, Crypto) should explore bonds, especially Corporate bonds.
Hindu Undivided Families (HUF), corporate institutions, trusts and other entities can also purchase bonds.
Investors who trade in Futures and Options need to provide collateral while trading. Instead of giving cash, they can invest in Government bonds and give those as collateral. Thus they can continue to earn 6-7% income from those bonds, instead of zero that they would get by giving cash as collateral. Note that only Government bonds can be used as collateral and not Corporate bonds or others.
Investors are typically advised to diversify their portfolio between fixed income (like fixed deposits, bonds) and growth assets (like equity). A popular rule of thumb is to invest a portion of your portfolio equal to your age in fixed income, and the balance in growth. For example, if you are 35 years old, then you should invest 35% of your portfolio in fixed income and the balance 65% in stocks. The logic behind this is that when you are young, you have a higher risk appetite, fewer dependants, and a long career with escalating earning potential ahead of you. At that stage you can take more risk and invest in growth assets. As you grow older and build up savings, you need to keep some of it protected and thus invest more in fixed income.
Of this portion allocated for fixed income, investors can explore investing almost all of it in bonds since they provide higher returns at the same risk levels when compared to fixed deposits and other instruments. Bonds are fully regulated by SEBI, and the entire process from origination, rating, distribution and trading is governed by SEBI regulation.
Bonds can be purchased for as little as Rs 100.
Bonds: They are pure fixed-income investment options. They come with a fixed annual return and fixed maturity period.
Fixed Deposits: These instruments are offered by banks and non-banking financial organizations that return fixed interests, but typically lower than corporate bonds.
Government schemes like Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and Senior Citizens Savings Scheme (SCSS) provide high safety since they are government backed. They also provide tax-free returns upto 8%, but have lock-in periods ranging from 5-15 years, and limits on how much can be invested in these schemes (maximum 1.5 lakhs in a year).
While bonds have fixed maturity, there is no limit on investment amount and are tradable.
Yes, money invested in bonds can be withdrawn before maturity by selling the bond on secondary markets such as the NSE or BSE exchange. The sale price may differ from the face value or purchase price, and the investor might incur a capital gain or loss.
The interest earned from bonds is called Coupon. The interest rate of a bond is thus known as its Coupon Rate. For example, if a company issues a bond with a face value of ₹1,000 and an 8% annual coupon rate, it means the company will pay ₹80 every year to the bondholder until the maturity date.
Bonds where the interest is paid cumulatively at maturity are called Zero Coupon bonds.
Lets say you bought a bond at the time of its issuance at Rs 100, with a 10% annual coupon rate. If you sell it after 6 months, then you would not want to lose out on the interest accrued (but not yet received) which is Rs 5. This is called Accrued Interest. You will seek to sell the bond around Rs 105, which is the Clean Price of Rs 100 plus Rs 5 of Accrued Interest. This price of Rs 105 is called Dirty Price, which is reflected while trading on the exchange.
Clean Price, also referred to as a clean quote, is simply the price of a bond without factoring in accrued interest. Dirty Price is the price of a bond that factors in accrued interest.
No. You can use your existing broker account to buy bonds.
No. You can use your existing broker account to buy bonds on NSE and BSE. You do not need to register with an OBPP such as Indiabonds, Grip, Wint Wealth, Jiraaf, Bondbazaar or StableMoney.
Buying from NSE and BSE comes with many benefits such as transparent pricing, guaranteed settlement and zero commission. OBPPs sell bonds from their own inventory, from which they earn a margin. Their pricing is not transparent, and moreover you may not be able to sell your bonds in case you need to.
Earnings from bonds are generated in two parts. The first is interest income, which is the coupon paid at regular intervals. The second is capital gain, which is realized at maturity. Yield to Maturity (or Fixed Returns) of the bond incorporates both these incomes. A bond with 10% Yield could be giving 8% interest and 2% capital gain. The interest income is what you will get at regular intervals in your bank account. The capital gain will be seen when the bond matures and principal amount is deposited to your bank account. Thus, one of the reasons why the regular income you see (interest) may differ from the yield at which you purchased it. Another reason is that TDS is deducted from interest income, before it gets deposited into your bank account. Using the same example, assuming you were to receive Rs 8 as interest, a 10% TDS of Rs 0.8 will get deducted and Rs 7.2 will be deposited into your account. This TDS will be captured in your Form 16. Note that zero TDS is deducted on capital gain. Assuming you have Rs 2 as capital gain, no TDS will get deducted but you need to pay capital gains tax on that.
No, any interest that is accrued during the period that the bond is held gets reflected in the price of the bond. Lets say you bought a bond at the time of its issuance at Rs 100, with a 10% annual coupon rate. If you sell it after 6 months, then you would not want to lose out on the interest accrued (but not yet received) which is Rs 5. This is called Accrued Interest. You will seek to sell the bond around Rs 105, which is the Clean Price of Rs 100 plus Rs 5 of Accrued Interest. Thus you will not lose out on the interest. The buyer of this bond will pay Rs 105, and after 6 months will receive Rs 10 as interest in his/her bank account.
You can sell your bonds on NSE and BSE, in the same manner as stocks, through your existing broker account.
Yield to Maturity is the return that you earn if you hold the bond till maturity. For example, if you purchase a bond during its IPO and you hold it till maturity, then the yield is equal to the interest rate. However, if you purchase a bond from the secondary market (exchange) sometime in-between its tenure, then the effective return over the remaining tenure can be higher or lower than the interest rate depending on the price that it is purchased at. This effective XIRR return is called yield to maturity or YTM.
Example 1. Corporate bond purchased at Rs 100 (equal to its face value) paying 10% interest rate for 5 years, will deliver a yield of 10% to the bondholder over the tenure.
Example 2. Same corporate bond of Rs 100 face value is purchased from exchange at Rs 90 after 2 years. In the balance tenure of 3 years, the bondholder will receive interest of Rs 10 × 3 = Rs 30 and also see Capital Gains of Rs 10 (over the purchase price of Rs 90) when the principal is repaid at maturity. Thus, the investor earns a total of Rs 40 over a 3 year period on the investment of Rs 90. This equates to annualised yield of 14.3%.
Bond yield and bond price are inversely proportional to each other, i.e., higher the yield, lower the price of the bond and higher the price, lower will be the yield of the bond.
The minimum investment amount for Government Securities is Rs.100 and for Corporate Bonds it is Rs.1000.
Bonds are either issued publicly through an IPO (similar to equity IPOs) where all categories of investors can apply. Bonds are also issued through private placement, where the investor list is restricted to certain institutional investors, and may not be open to retail investors. Both types of bonds are later listed on the exchange and investors can purchase these bonds through these secondary markets.
Certain bonds remain unlisted, and are not traded on exchanges. However more than 10,000 bonds are listed and traded across a wide variety including Government, Corporate, SGB and Tax-free bonds.
Yes, you can invest in any number of bonds. Diversification is always an advisable investment strategy, and because bonds can be bought in small amounts it is straightforward to hold more than one.
You can choose to sell all or only a portion of your units in a bond, depending on your requirements.
There are various types of bonds available in the Indian Market, namely Capital Gains Bonds, Government Securities, Corporate Bonds, Inflation-Linked Bonds, Convertible Bonds, Sovereign Gold Bond and RBI Bond.
Government bonds: Government bonds are issued by the Central Government. They are also known as Government Securities or "GSecs". These Bonds carry the highest level of safety guaranteed by the Central Government and hence do not carry any credit rating.
State Bonds: The various States issue state Bonds in India. The States raise money via this Bond route regularly. These Bonds are called 'State Development Loans' or SDLs. Like GSecs, they are also perceived to be of the highest safety level and hence do not carry any credit rating.
Municipal Bonds: Municipal Bonds are issued by local or state-level government agencies to fund development activities like city development, urban transportation, healthcare infrastructure. These Bonds are popularly called as 'Muni Bonds.'
Public Sector Bonds: Public Sector Bonds are issued by organizations where the government holds more than 50% ownership. Example: NHAI, REC, ONGC.
Corporate Bonds: Large corporations and financial institutions issue these bonds to capitalize on their business operations. Example: Reliance, Adani, Tata, Mahindra, Muthoot.
State Government guaranteed bonds: These bonds are those where the principal and interest payouts are guaranteed by the State government. Example: Kerala Infrastructure Investment Fund Board, Andhra Pradesh State Beverages Corporation Limited.
Tax-Free Bonds: Certain PSU companies issue Tax-Free Bonds. The interest income earned from investment in these Bonds is 100% tax exempted.
Sovereign gold bonds (SGBs) are government bonds that are linked to gold prices. Sovereign gold bonds are issued in units equivalent to one gram of gold. Moreover, these bonds offer an annual interest rate of 2.5%, providing a regular income and potential capital appreciation from gold.
Government bonds offer safety with lower returns; corporate bonds offer higher returns with higher risk.
Secured bonds are backed by assets; unsecured (debentures) are not backed by specific assets and are riskier.
These bonds allow the issuer to redeem them before maturity, usually when interest rates fall. Investors benefit from higher coupon rates but face the risk of early redemption.
These can be converted into a predetermined number of equity shares of the issuing company. They offer the potential for capital appreciation if the company's stock price rises significantly.
Investors can earn fixed returns of 6-7% in Government bonds and 7-14% Corporate bonds. The nature of these returns and payouts vary by investments and are detailed out in the investment documents and returns schedule.
Bonds are considered as one of the best instruments for stable return on investments. However, like all investment classes, bonds also have their own set of risks. The most important risk in bonds is credit risk, namely whether the bond issuer will pay the interest and principal on time. Government bonds have effectively zero credit risk since they are backed by the government. Corporate bonds carry higher risk, which varies across companies.
Consider lending money to two businesses: one financially stable and well-established, the other struggling with debts and losses. You'd expect to be paid back confidently with the first, but be cautious with the second. In bond investing, the credit quality of the issuer has a similar effect. Issuers with strong credit quality, like government entities or reputable corporations, pose less risk of default. Investors are willing to pay more for their bonds, which means higher prices and lower yields.
If the issuer's creditworthiness declines, then that signals higher risk, causing bond prices to fall as investors demand greater yields to compensate for the increased uncertainty. Hence, issuer credit quality directly influences bond pricing and attractiveness.
Independent credit rating agencies such as CRISIL, ICRA, CARE give credit ratings to companies that reflect their credit safety. These ratings range across AAA, AA, A, BBB, BB, B, C, D. AAA represents highest safety whereas D represents Default. Ratings of BBB or higher are considered as Investment-Grade. Bonds rated BB or lower are called Non-Investment Grade, High-Yield or Junk Bonds. Credit ratings are not permanent, and issuers may see their ratings get upgraded or downgraded based on their financial performance and other factors. Credit rating of the issuer is thus periodically re-evaluated by the rating agency.
Note though that even Fixed Deposits have credit risk, namely whether the bank will be able to pay the interest and principal on time. Larger national banks have lower risk, while regional cooperative banks have higher risk.
Other risks that bondholders face are liquidity risk, interest rate risk and reinvestment risk. These come into play only if the bondholder decides to sell the bond before maturity.
Bonds are considered as one of the best instruments for stable return on investments. However, like all investment classes, bonds also have their own set of risks. The most important risk in bonds is credit risk, namely whether the bond issuer will pay the interest and principal on time. Government bonds have effectively zero credit risk since they are backed by the government. You are almost certain to receive full payment on time in government bonds.
Corporate bonds carry higher risk, which varies across companies. Independent credit rating agencies such as CRISIL, ICRA, CARE give credit ratings to companies that reflect their credit safety. These ratings range across AAA (Highest Safety), AA+/AA/AA- (High Safety), A+/A/A- (Adequate Safety), BBB+/BBB/BBB- (Moderate Safety), BB+/BB/BB- (Moderate Risk), B+/B/B- (High Risk), C+/C/C- (Very High Risk) and D (Default).
If the company does not pay the interest or principal on time then it is treated as a default (rated D), and the company is put into liquidation. Its assets are sold and the money is given to bondholders and other stakeholders. You may thus receive some or all of your money even if the issuer defaults. Certain bonds are categorized as Secured, wherein specific company assets are earmarked as collateral to be sold in case the company defaults on its payment. This is similar to the collateral someone puts up when taking a car loan or home loan, wherein that asset is seized and sold by the lender if the borrower defaults on payment.
While evaluating investment opportunities, three parameters are paramount:
1. Credit rating of the issuer: Credit rating indicates the risk associated with the investment opportunity. Higher the credit rating, lesser is the risk and vice versa. Government bonds carry Sovereign rating and are the safest with effectively zero risk. SEBI appointed rating agencies such as CRISIL, ICRA and CARE provide ratings to bond issuers.
2. Tenure: Tenure indicates the time for the bond to mature.
3. Fixed Returns (Yield to Maturity): This is the effective returns that the investor earns over the tenure of the bond if held till maturity.
Other key factors to look into are whether the bond is Secured (backed by collateral) or Unsecured; whether the bond is liquid with significant trading volume on the exchanges, in case there is a need to sell the bonds before maturity; the interest payment frequency, which is typically monthly, quarterly, annual or cumulative at maturity; the originator background (refer Information Memorandum), which helps understand the track record and financial health of the bond issuer; and key financial metrics of the issuer, such as Interest Coverage Ratio and Debt-to-Equity Ratio.
Returns from your bond investments (interest and principal) are credited directly into your demat-linked bank account. Returns are paid out as per the payout schedule mentioned in the Information Memorandum or other relevant documents.
Upon maturity, the principal amount, along with any remaining interest as per the return schedule, is credited directly to your bank account. No action is required from your end for these payments to be credited to your account.
Interest income from bonds is taxed at your income slab rate, similar to other debt instruments like FDs. Note that TDS (Tax Deducted at Source) of 10% is deducted on interest, and the remainder is credited to the investor's bank account. The TDS deducted by the Issuer can be adjusted against the total tax liability of the investor. This process is identical to FDs.
Principal repayment is not taxed unless there are capital gains. Capital gains from bonds held for over 1 year are treated as Long Term Capital Gains and taxed at LTCG tax rate which is at 12.5% in 2026. If the bond was held for less than 1 year then it is treated as Short Term Capital Gains which is taxed as per your income slab rate. Capital gains or losses from bonds can be set off against those arising from other asset classes.
Interest from Tax-free bonds is not taxable. If you sell Tax-free bonds before maturity, then capital gains (if any) will be taxed as per Capital Gains tax rates.
Interest from 54EC bonds is taxable as per your income slab rates.
Capital gains from Sovereign gold bonds (SGBs) are not taxed if purchased at the time of issuance and held till maturity. If SGBs are purchased from the secondary market then capital gains (if any) will be taxed.
Yes, 54-EC Bonds are specifically meant for investors earning long-term capital gains from sale of house property and would like tax exemption on these gains. These bonds do not allow any tax exemption on short-term capital gains tax.
Yes, there are multiple ways to save taxes through bonds.
1. Purchase tax-free bonds issued by certain PSUs. The interest income on these bonds is completely tax free.
2. Purchase bonds that are trading at a discount to their face value. You will earn capital gains at the time of maturity, which is taxed at LTCG tax rate (12.5%) which is much lower than the income slab rate for high earning individuals (30%).
3. Purchase 54EC bonds if you have long term capital gains arising from a sale of property. You can save the LTCG tax by reinvesting the gains in 54EC bonds issued by PSUs. Note that the investment limit is Rs 50 lakhs with a compulsory 5 year lock-in, and the interest income from those is taxable at slab rate.
In case your total income in any year is less than the threshold limits under the Income Tax rules, you can apply for a lower / nil rate of TDS with the Issuer by submitting Form 15G or 15H.
Show interest income under "Income from Other Sources". Show capital gains under the "Capital Gains" section with acquisition and sale details.
Check Form 16 or Form 26AS.