A loan you give the issuer, for predictable income.
Bonds are debt instruments issued by companies or governments to raise money. When you buy a bond, you lend money to the issuer and receive regular interest (coupon) payments plus the return of your principal at maturity.
The number that matters
A 7% FD and a 5.6% tax-free bond can be the same trade.
Fixed income is quoted before tax and earned after it. Once your slab is applied, the ranking of the options often flips. Put your own numbers in and see where you actually land.
After-tax comparison
FD vs bond vs tax-free bond, on the money you actually keep.
Your tax slab
At a 30% rate, a 5.60% tax-free bond leaves you exactly as well off as
a 8.14% fixed deposit
That is the number to compare against — not the coupon on the front of the brochure.
Adjust the rates
Bank fixed deposit
7.10% gross→4.88% net
Interest added to income and taxed at your slab, every year.
after 5y ₹12,69,296
Corporate / PSU bondBest after tax
9.00% gross→6.19% net
Coupon is taxed at slab too — but the headline rate is higher.
after 5y ₹13,50,389
Tax-free bond
5.60% gross→5.60% net
Interest exempt under Section 10(15). Lower coupon, nothing deducted.
after 5y ₹13,13,166
Indicative and simplified: coupons are assumed reinvested at the same post-tax rate, TDS timing and any capital-gains treatment on secondary purchases are ignored, and tax-free issues are no longer being made — they trade in the secondary market at a yield that moves. Not tax advice. Confirm your slab with your CA before acting on this.
How bonds work
Steady, predictable income — by design.
Shares make you an owner, and pay you only if the company does well. A bond makes you a lender: you are owed a fixed amount on fixed dates, whatever the share price is doing. That is the whole difference, and it is why the two belong together in a portfolio.
The loan
You lend money to the issuer, who pays you interest at set intervals — monthly, quarterly or annually.
The repayment
On the maturity date, the issuer returns your full principal.
The terms
The rate and the repayment date are fixed up front, so you know the schedule before you commit.
Anatomy of a bond
Know the moving parts.
Coupon
The interest a bond pays, on dates fixed when it is issued. This is the income you are buying.
Maturity date
The day you get your principal back. Short-term runs to 5 years, medium-term 5 to 10, long-term beyond that.
Credit rating
CRISIL, CARE and ICRA publish an opinion on how likely the issuer is to pay you back. It is a judgement, not a guarantee, and ratings get downgraded.
Face value
Also called par value — the amount the issuer repays you at maturity, and the amount the coupon is calculated on.
Issue date
The day the bond starts and the clock on its tenure begins running.
Yield to maturity
What you actually earn if you hold the bond to the end. It folds in the coupons and any gain or loss against the price you paid — which is why it differs from the coupon rate.
Indicative yields
Where the curve sits today
Approximate annualised yields across tenures and issuer categories. For indicative purposes only — call us for live, executable quotes.
Types of bonds
Start from what you need.
There are a dozen bond structures, and almost nobody needs to learn them all. Find the row that sounds like you — the structures that serve it are named alongside.
“I want regular income”
A fixed-rate bond pays the same coupon on the same dates until maturity, so you can plan around it. PSU issues are the usual starting point.
“I want to keep the whole coupon”
Interest on certain older PSU issues is exempt from tax under Section 10(15). The coupon looks lower until you compare it after tax — which is what the calculator above is for.
“I want maximum safety”
Central government paper carries the lowest credit risk in the country. State Development Loans sit just behind it and usually pay a little more.
“I want a higher yield and I understand the risk”
Corporate paper below AAA pays more precisely because default is more likely. This is where the credit rating stops being a formality.
“I am worried about rates rising”
A floating-rate bond resets its coupon against a benchmark such as the repo rate, so it moves with the market instead of being stranded below it.
“I want a lump sum, not an income”
A zero-coupon bond pays nothing along the way. You buy it at a discount and receive the full face value at maturity — useful when you are saving toward a dated goal.
One more thing to check
Can it end early?
Callable
The issuer can repay you early — usually when rates have fallen and they can refinance cheaper, which is exactly when you would rather they did not.
Puttable
You can sell the bond back to the issuer before maturity at a price agreed up front. Rarer, and worth paying for.
Who issues bonds in India
From sovereign to corporate.
Government of India
Issues Treasury bills from 91 to 364 days and dated securities running as long as 40 years. This is the safest credit in the country.
Public sector undertakings
State-owned companies such as NTPC, NHAI and PFC borrow this way. They pay more than the government does, and carry the government's backing without its guarantee.
State governments
States raise money through State Development Loans, which usually yield a little above central government paper.
Municipal corporations
City bodies fund roads, water and sanitation this way. The market is small in India, so these trade rarely.
Banks and NBFCs
Lenders such as SBI and Bajaj Housing Finance borrow from the bond market to fund the loans they make.
Private companies
Pay the most, because you are taking the most credit risk. Whether you can sell before maturity depends on if the issue is listed on the NSE or BSE.
Advantages
Why bonds belong in your portfolio.
Predictable, stable income
A known coupon on known dates, whatever equities are doing that quarter.
A legal claim, not a hope
Bondholders are legally entitled to their interest and their principal back — you are a creditor, not an owner.
Tax-free options exist
Interest on certain older PSU issues is exempt under Section 10(15). None have been issued since 2016, so they only trade secondary — which is why the yield moves.
Genuine diversification
Bonds often move differently from equities, which is what makes them useful alongside them rather than instead of them.
Limitations
Eyes-open investing.
Inflation eats a fixed coupon
A rate that looked comfortable in year one buys less in year ten if inflation runs hot.
You may not be able to sell
Many Indian bonds trade thinly. Getting out early can mean accepting a worse price than the screen suggests, or waiting.
You give up the upside
A bond pays what it promised and no more. If the company triples in value, the shareholders get that — you get your coupon.
Bond ratings (India)
Understanding credit risk.
Issued by CRISIL, CARE, ICRA and others.
| Rating | What it means | Risk of default |
|---|---|---|
| AAA | Highest safety. Default is about as unlikely as it gets. | |
| AA | High safety. Very low chance of default. | |
| A | Adequate safety. Low chance of default. | |
| BBB | Moderate safety. The lowest rung still considered investment grade. | |
| BBbelow investment grade | Moderate risk of default. Below investment grade. | |
| B | High risk of default. | |
| C | Very high risk of default. | |
| D | Already in default, or expected to be. |
FAQ
Bonds, answered.
Are bond returns guaranteed?+
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.
What is the riskiest type of bond?+
The riskiest bonds are 'junk' or high-yield bonds, typically rated BB or lower by credit rating agencies.
What is the safest type of bond?+
Bonds issued by the Government of India are generally considered the safest. Though their returns are lower, the risk of default is virtually zero.
How do bonds work?+
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.
How to buy bonds?+
Bonds, unlike stocks, are not openly traded on an exchange. Instead, they are traded over the counter, meaning you can purchase them through brokers.
Live quotes
Ask for the yield sheet.
The curve above is indicative. The yield sheet is the live one — what is actually on the shelf this week, with issuer, coupon, maturity, rating and the minimum lot.
Tell us roughly what you are looking to deploy and over what horizon, and we will send the issues that fit rather than the whole list.
Or talk to an expert now