Investment advisor Martin Whitman had once written, “With stocks, you have to worry about the market. With debt, I just have to understand the contract. If my analysis is right, I’ll make money.”
Investors may consider this lesser-known and mysterious asset class called bonds, vis-à-vis its more famous asset cousins like equities, MFs, gold, insurance, FDs, etc.
“In simple terms, a bond is a loan that you, as an investor, give to an issuer in exchange for regular interest payments and the return of your money at maturity (of the bond),” says Vishal Goenka, Co-Founder, IndiaBonds.com.
In India, bonds are issued by the Government of India (through G-Secs and Treasury Bills), state governments (State Development Loans), public sector undertakings, private corporates, banks, and financial institutions.
“Bonds are similar to Fixed Deposits, in that they give regular fixed interest and principal payment. However, the difference, though, is that unlike FDs, bonds are tradable instruments,” points out Suresh Darak, Founder, Bondbazaar.
So, once you have purchased a bond, you do not need to hold it till maturity. The investor can sell the bond on secondary markets just like stocks, after which the buyer receives the interest and principal on the remaining tenure of the bond.
Bonds are suitable for most investor categories since they are versatile and provide solutions for every type of investing requirement. “Investors looking for regular 10-12% fixed returns can explore Corporate bonds,” says Darak.
Individuals wanting to save tax can explore Tax-Free bonds issued by government-backed entities, where the interest income is tax-free.
Investors interested in buying gold can look at Sovereign Gold Bonds as a great way to benefit from appreciating gold prices as well as earn interest.
Salaried professionals nearing retirement can consider deep discount bonds where the interest and principal payment happen after their retirement, possibly reducing the tax slab on which the income is applied.
Thus, there are various use categories of bonds that investors can explore for both interest income as well as other purposes.
For those working towards specific goals like children’s education or a home purchase, Bonds allow you to match maturity timelines to your cash flow needs.
“Depending on the bond type—government, PSU, or corporate—they can cater to investors across the risk spectrum,” says Goenka.
How can retail investors invest in bond asset class?
Till recently, bonds were largely an institutional product. “But SEBI’s framework for Online Bond Platform Providers (OBPPs) has opened the door for retail participation,” says Goenka.
Today, you can buy listed bonds online, in small denominations starting from ₹10,000, through OBPPs. The process is as seamless as buying a mutual fund or stocks—search, select, complete KYC, and pay digitally.
The debt securities are directly credited to your demat account. The interest and principal payments are made directly to the customer’s bank account.
There are SEBI-regulated OBPPs, as well as RBI Retail Direct, NSE, and BSE debt segments that allow investors to buy and sell bonds directly.
On the Online Bond Platform Providers platforms, you can browse various bond offerings, filter by yield, rating, maturity, or issuer, complete your KYC online, and invest instantly.
Once purchased, the bonds are credited to your demat account, and interest is credited directly to your bank.
To buy bonds, investors can use any OBPP such as Bondbazaar, Indiabonds, Wint Wealth etc. “They should ensure that the OBPP is SEBI-registered,” says Darak.
How to buy and sell bonds?
The process of buying and selling bonds is almost identical to equities. Investors need to first create an account with an OBPP by completing their KYC, linking their bank account and demat account. Then they need to select the bond, fund their account and execute the transaction. Bonds will get credited in their demat account in T+2 days, with interest and principal payments credited to their bank accounts.
To be sure, before investing in bonds, one must exercise due diligence, just like in any asset class.
The investor must start with understanding the issuer’s creditworthiness. In India, Bonds are rated by SEBI-regulated credit rating agencies like CRISIL, ICRA, CARE, and India Ratings, on a scale from AAA (highest safety) to D (default).
“While ratings are important, investors should also look at financial statements, past repayment history, and industry outlook. For higher yields, risks are usually higher—so assessing whether the yield compensates for the risk is critical,” says Goenka.
The investor needs to look at who is issuing the bond — Is it a government body, a reputed company, or a lesser-known entity?
“Please note that selling bonds is not always as easy. This is where I believe investors need to be more cautious,” says Pallav Bagaria, Director at Sapient Finserv.
While government securities tend to have better liquidity, many corporate bonds are thinly traded on the secondary market. Thus, if the investor needs to exit early, they may either struggle to find a buyer or may need to sell their bond at a discount.
“Liquidity matters, especially in the case of corporate bonds,” says Bagaria.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
