Corporate bonds have become an attractive investment option in India, offering a balance between risk and return. They are issued by companies to raise capital for business expansion, working capital, or other operational needs. With the ease to purchase bonds online, investors can now access a wide range of corporate bonds, each catering to different risk appetites and financial goals. Here's an overview of the various types of corporate bonds available in India.

1. Fixed-Rate Bonds

These bonds pay a predetermined interest rate (coupon) throughout their tenure. Investors receive periodic interest payments at fixed intervals, making them suitable for those seeking a predictable income stream. Fixed-rate bonds are ideal during stable or declining interest rate scenarios.

• Example: A company might issue a bond with a 7% annual coupon, ensuring the investor earns a fixed return until maturity.

2. Floating-Rate Bonds

Unlike fixed-rate bonds, floating-rate bonds have interest rates that fluctuate based on a benchmark such as the RBI’s repo rate or other market indices. These bonds protect investors from interest rate risks, making them a good choice during rising interest rate periods.

• Example: A bond offering returns pegged to the repo rate plus 2% ensures returns adjust to market conditions.

3. Zero-Coupon Bonds

Zero-coupon bonds do not pay periodic interest. Instead, they are issued at a discount to their face value, and the investor receives the face value at maturity. These bonds are suitable for investors looking for capital appreciation rather than regular income.

• Example: A bond purchased at ₹900 with a face value of ₹1,000 provides a return of ₹100 at maturity.

4. Secured Bonds

Secured bonds are backed by collateral, such as company assets, ensuring investors a higher degree of safety in case of default. These bonds typically have lower yields compared to unsecured bonds due to their reduced risk.

• Example: Bonds backed by real estate assets or inventory, provide an additional layer of security for investors.

5. Unsecured Bonds

Unsecured bonds, also known as debentures, are not backed by specific assets. These bonds carry higher risks but often offer higher yields to compensate investors. They rely solely on the issuer’s creditworthiness.

• Example: Non-convertible debentures (NCDs) issued by a reputed company without collateral.

6. Convertible Bonds

Convertible bonds give investors the option to convert the bonds into equity shares of the issuing company at a predetermined conversion ratio. These bonds combine the features of debt and equity, offering the potential for capital appreciation.

• Example: A bondholder may choose to convert bonds into shares if the company’s stock performs well.

7. Callable and Puttable Bonds

• Callable Bonds: Issuers can redeem these bonds before maturity, typically during periods of declining interest rates.
• Puttable Bonds: Investors have the right to sell these bonds back to the issuer before maturity, offering flexibility and reducing risk.

8. Perpetual Bonds

Perpetual bonds have no fixed maturity date and pay interest indefinitely. These bonds are ideal for investors seeking regular income over a long term. However, they carry higher risks as repayment of the principal is not guaranteed.

9. Taxable and Tax-Free Bonds

• Taxable Bonds: Interest earned is subject to taxation as per the investor’s income tax slab.
• Tax-Free Bonds: Issued by certain public sector undertakings (PSUs), the interest earned on these bonds is exempt from taxes, making them attractive for high-income individuals.

How to Invest in Corporate Bonds

With the digital transformation of India’s financial sector, it is now easier than ever to purchase bonds online with SEBI registered OBPP’s that provide a seamless experience for investors to explore, compare, and invest in a variety of corporate bonds. These platforms offer detailed information on yields, ratings, and tenure, empowering investors to make informed decisions.

Final Thoughts

Corporate bonds in India offer diverse opportunities for investors to align their investments with their financial objectives and risk profiles. From the stability of secured bonds to the growth potential of convertible bonds, there’s something for everyone.

With the option to purchase bonds online, accessing these investment options is more convenient than ever, making it an excellent time to consider corporate bonds for your portfolio. Whether you’re seeking regular income or capital growth, corporate bonds remain a versatile and rewarding investment choice.