Corporate Bonds
A corporate bond is a loan you give directly to a company in exchange for a fixed periodic interest payment (the coupon) and repayment of the principal at maturity. Once available mainly to institutions, SEBI-regulated Online Bond Platforms have made corporate bonds accessible to retail investors with as little as ₹10,000 — offering a fixed-income option that can offer higher yields than bank FDs, along with credit risk that FDs don't carry.
What Is a Corporate Bond?
When a company needs to raise money, it can either issue shares (equity) or borrow money by issuing bonds (debt). As a bondholder, you are a lender to the company, not an owner — you receive a fixed coupon at pre-defined intervals (monthly, quarterly, or annually) and get your principal back at maturity, provided the company doesn't default. Bonds rank ahead of shareholders in a company's repayment priority, and secured bonds rank ahead of unsecured ones — but unlike a bank FD, there is no deposit insurance and no guarantee: your capital is at genuine credit risk.
How Retail Access Changed: Online Bond Platform Providers (OBPPs)
Until recently, corporate bonds traded in lot sizes of ₹10 lakh or more, keeping the market almost entirely institutional. SEBI's OBPP framework (tightened further in 2022-23) now allows SEBI-registered Online Bond Platform Providers to list bonds for retail investors, in some cases with face values as low as ₹1,000-₹10,000. Bonds bought via an OBPP are held directly in your own demat account, just like shares — so you can see the exact issuer, coupon rate, maturity date, and credit rating before you invest.
Understanding Credit Ratings
Every listed bond carries a credit rating from an agency like CRISIL, ICRA, or CARE, indicating the issuer's ability to repay. Ratings run on a scale from AAA (highest safety) down through AA, A, BBB (the investment-grade cutoff) to BB and below (sub-investment grade, higher yield but meaningfully higher default risk). A higher yield on a bond almost always signals a lower rating and higher risk — there's no such thing as a high return with no added risk in the bond market.
| Rating Band | What It Means |
|---|---|
| AAA | Highest safety; lowest yield among corporate bonds |
| AA | High safety; slightly higher yield than AAA |
| A | Adequate safety; moderate risk |
| BBB | Moderate safety; lowest "investment grade" rating |
| Below BBB | Sub-investment grade ("junk"); meaningfully higher default risk |
Corporate Bonds vs Fixed Deposits vs Mutual Funds
| Factor | Bank FD | Corporate Bond | Debt Mutual Fund |
|---|---|---|---|
| Capital Safety | DICGC-insured up to ₹5 lakh | No insurance; depends on issuer credit rating | No insurance; diversified across issuers |
| Typical Yield | Lower | Higher, scales with credit risk | Moderate, varies by scheme |
| Liquidity | Premature withdrawal penalty | Tradeable on exchange (liquidity varies by bond) | High (redeem any business day) |
| Diversification | None — single issuer (the bank) | None per bond — concentrated in one issuer | High — spread across many issuers |
| Minimum Investment | Varies by bank, often low | As low as ₹1,000-₹10,000 via OBPPs | As low as ₹100s via SIP |
Growth of India's Corporate Bond Market
India's total outstanding corporate bonds stood at ₹51.6 lakh crore as of December 2024 — more than tripling from just under ₹16 lakh crore in 2014. Annual fresh issuance has also grown steadily, hitting a record in FY25:
Annual fresh issuance of corporate bonds (₹ Lakh Crore) — not total outstanding stock
Who Should Invest in Corporate Bonds?
Corporate bonds suit investors who want a fixed, predictable income stream, are comfortable evaluating (or relying on advice about) issuer credit risk, and are willing to accept concentration in a single issuer per bond in exchange for a potentially higher yield than a bank FD. They work well as part of a diversified fixed-income allocation — spread across several issuers and ratings — rather than as a single large bet on one company. Investors who want built-in diversification without picking individual issuers are usually better served by a debt mutual fund instead.
Taxation of Corporate Bonds (FY 2026-27)
| Component | Treatment |
|---|---|
| Coupon (interest) income | Taxed as "income from other sources" at your slab rate |
| TDS on interest | 10% under Section 193 once interest from one issuer crosses ₹10,000/year; adjustable against final tax liability |
| Listed bonds — held ≤ 12 months | STCG taxed at slab rate |
| Listed bonds — held > 12 months | LTCG @ 12.5% (no indexation benefit) |
| Unlisted bonds — any holding period | Taxed at slab rate; no LTCG concession regardless of holding period |
Tax rates are illustrative for FY 2026-27 and may change with future Finance Acts. Please consult your tax advisor before making investment decisions based on tax treatment.
Curious Whether Corporate Bonds Fit Your Portfolio?
Bond suitability depends on your income needs, risk appetite, and comfort with issuer-specific credit risk. Let's discuss whether it makes sense for you.
Talk to Artha Investment Services