How do corporate bonds work in India?

Corporate bonds are fixed-income instruments issued by companies to raise capital. In India, these bonds offer regular interest payments and are used by investors looking for steady returns with moderate risk. They are a popular choice among conservative investors who want to earn more than traditional savings but are not ready for stock market volatility.

What Are Corporate Bonds?

Corporate bonds are debt securities issued by private or public companies. When you invest in these bonds, you are essentially lending money to the company. In return, the company promises to pay you interest (called a coupon) at regular intervals and return the principal amount on maturity.

These bonds are traded on exchanges like NSE and BSE or over-the-counter (OTC), and they are rated by credit agencies based on the issuer's financial strength.

How Do Corporate Bonds Work in India?

In India, companies issue bonds to raise funds for expansion, acquisitions, or working capital. These bonds are regulated by SEBI and listed on exchanges. Investors can buy them through brokers or demat accounts. Here's how they work:

• Issuer: A company issues the bond with a fixed interest rate and maturity period.
• Investor: You buy the bond, becoming a lender to the company.
• Coupon Payments: You receive regular interest payments (monthly, quarterly, or yearly).
• Maturity: At the end of the term, the company repays your initial investment.

Example: If you buy a ₹1,00,000 bond with a 7% coupon rate and 3-year term, you'll get ₹7,000 yearly, and ₹1,00,000 at the end of 3 years.

Why Do Investors Choose Corporate Bonds?

Corporate bonds are popular among Indian investors for these reasons:

• Higher Returns than FDs: Corporate bonds often offer better interest rates than fixed deposits.
• Regular Income: Investors get a steady stream of income through fixed coupon payments.
• Diversification: Bonds balance out a portfolio that's heavy in equities or mutual funds.
• Lower Risk: Compared to stocks, bonds are considered less volatile, especially investment-grade ones.

Types of Corporate Bonds in India

• Secured Bonds: Backed by company assets. Safer for investors.
• Unsecured Bonds: No collateral, but may offer higher returns.
• Convertible Bonds: Can be converted into shares of the issuing company.
• Perpetual Bonds: No maturity date, but regular interest is paid.

Each type suits different risk profiles, so it’s important to check credit ratings and understand the terms.

Corporate bonds in India offer a great way to earn stable returns, diversify your portfolio, and reduce risk. Whether you're a new investor or planning for retirement, these bonds can be a smart part of your investment strategy. Always check the credit rating, issuer background, and market conditions before investing.