How to Buy Corporate Bonds in India

Introduction

Mr. Mehta, a diligent accountant in the 90s, is eager to invest in a corporate bond. He leaves work early, navigates through the bustling streets to meet his broker and sits down in a dimly lit office surrounded by stacks of paperwork. After painstakingly filling out numerous forms and writing a cheque, Mr. Mehta anxiously waits for weeks. Eventually, he receives a crisp, fragile bond certificate that he stores away in his steel almirah, double-checking every so often to ensure it hasn’t been lost, stolen, or damaged. Transferring or redeeming the bond later required yet another laborious round of visits, forms and signatures. Fast forward to 2024 and now Mr. Mehta can buy a bond in just 5 minutes without leaving the comfort of his home. In this article, we’ll explore how you too can buy corporate bonds in India – effortlessly, securely and with just a few clicks.

What are corporate bonds?

Corporate bonds are debt securities issued by corporations to raise capital for their operations, expansion, or other business activities. When you invest in a corporate bond, you’re essentially lending money to the company in exchange for periodic interest payments (known as coupon payments) and the return of your principal at the bond’s maturity. Corporate bonds can range in duration from short-term to long-term and typically offer higher returns than government bonds due to the relatively higher risk involved. These risks include credit risk, where the issuing company may fail to meet its payment obligations and interest rate risk, which affects the bond’s market value depending on fluctuations in interest rates. Companies issue these bonds to diversify their financing sources beyond traditional bank loans, giving them flexibility to grow their business while offering investors an opportunity to earn steady income. Click here to read a more detailed article on corporate bonds.

Benefits of investing in corporate bonds

Investing in corporate bonds offers a variety of benefits, making them a compelling option for many investors. First and foremost, they provide consistent income through coupon payments, which can be particularly appealing for those looking for predictable cash flow. Corporate bonds typically offer higher yields compared to government bonds. For investors seeking to diversify their portfolios, corporate bonds can serve as a stabilizing element, often displaying less volatility than stocks. Additionally, investing in corporate bonds provides the potential for capital appreciation. As a company’s financial performance improves, its credit rating may rise, leading to an increase in the bond’s price. This, in turn, allows investors to benefit from higher returns as the overall value of the bond increases. Investing in corporate bonds offers the potential for capital appreciation. When a company’s financial performance strengthens, its credit rating may improve, which can positively impact the bond’s price. Additionally, as we are at the peak of the interest rate cycle, any downward movement in interest rates could lead to a rise in bond prices. With these factors in play, one might observe capital appreciation if invested at the right time.

How to invest in corporate bonds in India?

Corporate bonds can be purchased through SEBI-registered Online Bond Platform Providers (OBPPs) or on exchanges via a registered stockbroker. They can be bought in either the primary or secondary market. Companies raise money in debt markets through public issues, often referred to as Bond Public Issuances or Bond IPOs. In these cases, investors buy bonds directly from the issuer, making this the primary market, as the bond is being issued for the very first time. Once bonds are issued, they can be traded among investors in the secondary market. In this market, investors buy and sell bonds that have already been issued just like equity. For instance, if you purchase a bond in the primary market and later sell it to another investor, that transaction takes place in the secondary market. Thanks to the FinTech boom and the advent of OBPPs like IndiaBonds, investing in corporate bonds in India has become incredibly simple. You can now easily purchase bonds online, making the entire process much more accessible and efficient for both new and seasoned investors. Below are the steps to invest in corporate bonds:

Choose a Platform: OBPPs provide easy access to corporate bonds with transparent pricing and zero commissions. Ensure the platform you choose is SEBI-registered for a secure, compliant investment experience.

Complete KYC: If you haven’t completed it yet, you’ll need to complete your KYC. At IndiaBonds, you can finish this quick, paperless process in just 3 minutes after signing up!

Browse Bond Listings: Once registered, browse the available corporate bonds, noting the issuer’s credit rating, coupon rate and maturity period. IndiaBonds offers 60-100 bonds at any given time.

Place Your Order: After selecting a bond, place your order by specifying the quantity. Your payment on bond platforms is securely processed through payment gateways and goes directly to the clearing house for settlement. Unlike equities, your money does not go to the Online, ensuring added safety.

Connect with the sales representative: If you’re unsure about how to invest in corporate bonds, our Bond Managers will provide hand-holding throughout the entire process, ensuring a smooth and seamless experience from start to finish.

Be sure to conduct your own due diligence by reviewing the issuer’s financial health and thoroughly reading the information memorandum or term sheet, rating reports, etc.

Ways to Invest in Corporate Bonds

There are multiple ways for investors in India to invest in corporate bonds. One of the easiest routes is through SEBI-registered Online Bond Platform Providers (OBPPs) like IndiaBonds, which offer curated bonds and easy digital execution. Investors can also invest via stock exchanges, where listed bonds are available for purchase through a demat account and trading platform. Mutual fund schemes focused on corporate debt offer indirect exposure for those who prefer professional management. For high-net-worth individuals (HNIs), subscribing directly to public or private placements of NCDs (Non-Convertible Debentures) is also an option. Each route differs in terms of minimum investment size, liquidity, and due diligence required.

Strategies for Investing in Corporate Bonds

A smart approach to investing in corporate bonds involves aligning them with your financial goals and risk appetite. A laddering strategy—where you invest in bonds with staggered maturities—helps manage interest rate risks while ensuring regular liquidity. You can also opt for high-rated bonds for safety or lower-rated bonds for higher returns, based on your comfort with credit risk. Long-term investors may consider buy-and-hold strategies to earn fixed income over time, while active investors can capitalize on price movements in the secondary market. Diversifying across tenures, sectors, and issuers also helps reduce concentration risk.

Factors to Consider Before Investing in Corporate Bonds

Before investing in corporate bonds, assess the credit rating of the issuer—this reflects the company’s ability to repay. Also evaluate the coupon rate, maturity date, interest payment frequency, and whether the bond is secured or unsecured. Liquidity is another key factor; some bonds trade actively in the secondary market while others may not. Understanding tax implications, especially on interest income and capital gains, is essential. Finally, consider how the bond fits into your overall portfolio and whether it matches your return expectations and risk tolerance.

Conclusion

The digital evolution of India’s financial markets has made it easier than ever to invest in corporate bonds. What once required time-consuming paperwork and visits to brokers has now become a simple, online process that can be completed in minutes. As we’ve discussed, corporate bonds offer attractive yields, regular income and stability, making them a smart choice for investors looking to diversify their portfolios. However, it’s essential to understand the risks involved and do your research before investing. With just a few clicks, you can now invest in corporate bonds and be a part of India’s corporate growth story while enjoying the benefits of steady returns—completely hassle-free.

FAQs

Q. Are corporate bonds safe investments?

A. Corporate bonds carry relatively more risk than government bonds due to the possibility of the issuing company defaulting. However, bonds issued by companies with strong credit ratings are generally considered safer. It’s essential to weigh these risks before investing.

Q. Can I sell corporate bonds before maturity?

A. Yes, you can sell corporate bonds before maturity on the secondary market, although the price will depend on current interest rates and market demand.

Q. What is a credit rating and why is it important?

A. A credit rating assesses the financial health of the bond issuer and their ability to repay debt. Higher-rated bonds (e.g., AAA) are considered safer but may offer lower yields, while lower-rated bonds offer higher returns but carry relatively more risk. Always check the credit rating before investing.

Q: What Are The Tax Implications Of Investing In Corporate Bonds?

A: Interest earned on corporate bonds is taxed as per your income slab. If you sell the bond before maturity, capital gains tax applies. Short-term capital gains are taxed at slab rates, while long-term capital gains (if the bond is listed and held for more than 12 months) are taxed at 10% without indexation.

Q: How Do Interest Rates Affect Corporate Bonds?

A: Corporate bond prices move inversely with interest rates. When interest rates rise, bond prices fall, and vice versa. This is especially relevant for long-term bonds. Floating-rate bonds adjust with market rates and are less affected by these shifts.

Q: Are Corporate Bonds Suitable For Retirement Portfolios?

A: Yes, high-rated corporate bonds offering regular interest payouts can be a good fit for retirement portfolios. They offer predictable income and lower volatility than equities, though investors should still evaluate credit risk and diversify across issuers.

Disclaimer: Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.