Bonds — income
you can diarise.
Debt instruments issued by companies and governments to raise money. You lend; in return you receive interest at regular intervals and your principal back at maturity.
What you earn depends on the price you pay.
A ₹1,000 bond with an 8% coupon pays ₹80 a year, whatever you paid for it. Buy it for ₹950 and you also get ₹50 back at maturity, so you earn more than 8%; pay ₹1,050 and you earn less. That real return is the yield to maturity (YTM) — put in a price and see it.
- Current Yield
- 8.16%
- Annual Coupon
- ₹8,000
Each rung matures in a different year, so money comes back to you in stages rather than all at once.
An illustration on the figures above, not a quote and not advice.
How a bond works
A bond is, in effect, a loan you make to the issuer. You lend the money, the issuer pays interest — the coupon — at fixed intervals, monthly, quarterly or annually. At maturity the full principal, the face value, is repaid.
Because the interest rate and the principal are usually fixed at the outset, the return is predictable in a way that equity never is. That predictability, rather than the size of the return, is the whole point of the instrument.
Limitations, and what to check first
A fixed coupon loses purchasing power if inflation rises. The rupees arrive as promised; they buy less than they did.
Bonds are largely traded over the counter rather than on an exchange. Long-dated or unlisted issues can be difficult to sell quickly at a fair price.
Safer than stocks, and historically lower-returning over long periods. That trade is the instrument, not a flaw in it.
Then the tenure, then whether the bond is callable. Higher interest usually means a longer lock-in or a weaker issuer — occasionally both.
Bonds, step by step.
- 1Pick the issuer
Government securities, PSUs or rated corporate bonds.
- 2Check the rating
AAA to D, and what each band actually implies.
- 3Buy
Held in your demat account, in your own name.
- 4Collect the coupon
Paid to your bank account on the stated schedule.
Understand Bonds properly.
How it works, the types, both sides and the comparisons — for when you want the full picture.
The balance between safety and return
Steady returns that keep arriving even when equity markets are volatile — which is exactly when you notice them.
A bondholder is legally entitled to receive both the interest and the repayment of principal. A shareholder is entitled to neither.
Bonds often perform differently from equities, which is what reduces the overall risk of holding both.
Who issues bonds in India
The issuer is the credit. Understanding who is on the other side of the loan matters more than any other single factor.
- Government of India — treasury bills from 91 to 364 days, dated securities out to 50 years
- State governments — State Development Loans (SDLs) funding regional projects
- Public sector undertakings — government-backed issuers such as NTPC, NHAI and PFC
- Banks and NBFCs — institutions raising funds for their credit operations
- Private corporations — higher yields, and listed issues can be liquid on the NSE or BSE
- Municipal corporations — local bodies financing urban infrastructure
Yield to maturity is the number that matters
YTM is the total return you can expect if you hold the bond until it matures. It accounts for the coupon payments and for any gain or loss against the price you actually paid — which is why two bonds with the same coupon can be very different investments.
- Coupon rate — the annual interest, as a percentage of face value
- Face value — the principal the issuer repays at maturity
- Tenure — short-term to 5 years, medium 5–10 years, long-term 10 years and beyond
Types of bonds
Nine structures, each solving a slightly different problem.
Issued by central or state governments and considered the safest available, backed by a sovereign guarantee.
Issued by companies. Higher yields, and correspondingly higher risk than government paper.
The interest rate stays the same until maturity, giving entirely predictable income.
The interest adjusts periodically against a benchmark such as the RBI repo rate.
No interest is paid along the way. Issued at a deep discount, with the full face value paid at maturity.
Payments adjust for inflation, protecting the real value of the return.
Issued by local urban bodies to finance roads, schools and water systems.
The issuer may redeem the bond before maturity under set conditions — which can disrupt your reinvestment plan.
The investor may sell the bond back to the issuer before maturity at a pre-specified price.
Bond ratings in India
SEBI-registered agencies — CRISIL, CARE, ICRA, India Ratings, Acuité and others — assess the issuer’s creditworthiness. The rating is the shorthand for how likely you are to be repaid — and it is an opinion, not a promise.
| Rating | What the agency says | Credit risk |
|---|---|---|
| AAA | Highest degree of safety | Lowest |
| AA | High degree of safety | Very low |
| A | Adequate degree of safety | Low |
| BBB | Moderate degree of safety | Moderate |
| BB | Moderate risk of default | Speculative |
| B | High risk of default | High |
| C | Very high risk of default | Very high |
| D | In default, or expected to be | Default |
A rating is not a recommendation to buy or hold, and it is not permanent — an agency may downgrade or withdraw it if the issuer’s financial position deteriorates.
Bonds, answered.
Bonds are issued by governments and enterprises to raise funds. By purchasing a bond, you are making a loan to the issuer, who agrees to repay periodic interest payments and the face value of the loan on maturity.
No, bond returns are not always guaranteed. While bonds typically offer fixed interest (coupon) payments and face value at maturity, the guarantee depends on the type of bond and the issuer. Always check the bond’s credit rating before investing.
Bonds issued by the Government of India are generally considered the safest. Though their returns are lower, the risk of default is virtually zero.
The riskiest bonds are high-yield or “junk” bonds, typically rated BB or lower by credit rating agencies.
Bonds, unlike stocks, are not openly traded on an exchange. They are largely traded over the counter, which means you purchase them through a broker.
Certain government bonds carry tax-free interest, though no new tax-free bonds have been issued since 2016. Existing issues can still be bought in the secondary market.
Income you can put in a calendar.
Tell us the date you need the money and we will show you what is available against it.