Beginner’s Guide to Investing in Bonds in India (2025 Edition)

What Are Bonds?

For investors seeking steady and predictable income, bonds have become an essential part of a diversified portfolio. They offer stability, regular returns, and lower volatility compared to equities. In India, the bond market is evolving rapidly, with increased participation from retail investors through SEBI-regulated Online Bond Platform Providers (OBPPs).

This 2025 guide explains what bonds are, their types, how they work, and how you can begin investing in them in a safe, transparent, and regulated way.

A bond is essentially a loan made by an investor to a borrower—typically a government, public sector undertaking, or corporation. In return, the borrower promises to:

• Pay interest (coupon) periodically, and

• Repay the principal amount at maturity.

For example, if you buy a ₹10,000 bond with a 9% annual coupon and a 5-year tenure, you will receive ₹900 as interest each year and ₹10,000 back at the end of 5 years.

Bonds are fixed-income instruments because they provide regular, predictable returns over time.

How Do Bonds Work?

Here’s how a bond investment typically functions:

• Issuance:

The issuer (government or company) raises funds by selling bonds to investors.

• Interest Payments:

The issuer pays interest at fixed or variable intervals (monthly, quarterly, annually).

• Maturity:

At the end of the bond’s tenure, the principal amount is returned to the investor.

• Secondary Market:

Investors can also buy or sell bonds before maturity through registered platforms or stock exchanges.

The performance of bonds depends on interest rates, credit quality of the issuer, and market conditions.

Types of Bonds in India

India offers a wide range of bond types to suit different investor preferences. Here’s an overview:

1. Government Bonds (G-Secs)

Issued by the Reserve Bank of India (RBI) on behalf of the government, these bonds are considered among the safest investments.

Examples: Treasury Bills, Government of India Savings Bonds.

2. Corporate Bonds

Issued by private or public companies to raise capital for expansion or operations.

These bonds generally offer higher yields but come with credit risk, depending on the company’s rating.

3. Municipal Bonds

Issued by local government bodies to fund infrastructure projects. They are gaining attention for their social and developmental impact.

4. Tax-Free Bonds

Issued by government-backed institutions like NHAI, REC, or IRFC. The interest earned on these bonds is exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act.

5. Zero Coupon Bonds

Sold at a deep discount and redeemed at face value. These bonds do not pay regular interest but offer returns at maturity.

6. Inflation-Indexed Bonds (IIBs)

These bonds protect investors from inflation by adjusting both the principal and interest in line with inflation rates.

7. Perpetual Bonds

These do not have a fixed maturity date and pay interest indefinitely, often issued by banks to strengthen their capital base.

Why Should You Invest in Bonds?

Investing in bonds offers several advantages for both conservative and moderate investors:

• Stable Income:

Bonds provide regular coupon payments, ensuring predictable cash flow.

• Portfolio Diversification:

Bonds balance high-risk assets like equity, reducing portfolio volatility.

• Capital Preservation:

Fixed returns and lower risk make bonds ideal for wealth preservation.

• Transparency and Regulation:

Bonds are regulated by SEBI, ensuring fair and transparent trading.

• Range of Options:

From short-term to long-term, government to corporate, investors can choose bonds that suit their risk appetite and goals.

Risks Involved in Bond Investing

While bonds are considered relatively safer than equities, they are not risk-free. Investors should be aware of the following risks:

• Credit Risk:

The issuer may fail to make timely payments. Always check the credit rating (AAA, AA, A, BBB, etc.) before investing.

• Interest Rate Risk:

Bond prices and interest rates move inversely. When rates rise, existing bond prices typically fall.

• Liquidity Risk:

Some bonds may not have an active secondary market, making it harder to sell before maturity.

• Reinvestment Risk:

Interest received from coupons may need to be reinvested at lower rates if market rates decline.

How to Invest in Bonds in India (2025 Process)

In recent years, investing in bonds has become easier and more transparent for retail investors. Here’s how you can begin:

1. Through Online Bond Platforms

SEBI-registered Online Bond Platform Providers (OBPPs) such as enable investors to explore and invest in listed and unlisted bonds with full transparency.

These platforms provide key details like yield, maturity date, coupon rate, and credit ratings for informed decision-making.

2. Via Stock Exchanges

Bonds listed on NSE or BSE can be purchased through a demat and trading account, similar to equities.

3. Through Banks and NBFCs

Some institutions distribute bonds or Non-Convertible Debentures (NCDs) directly to their customers.

4. Mutual Funds and ETFs

Investors who prefer indirect exposure can invest in bond mutual funds or debt ETFs, which diversify across various bonds.

Before investing, ensure you understand the bond type, yield-to-maturity (YTM), issuer rating, and tenure.

Taxation on Bonds in India

Tax treatment depends on the type and tenure of the bond:

• Interest Income: Taxed under “Income from Other Sources” as per the investor’s income slab.

• Capital Gains:

1. Short-Term (holding < 12 months): Taxed as per the income tax slab.

2. Long-Term (holding > 12 months): Taxed at 10% without indexation or 20% with indexation, depending on bond type.

Tax-free bonds, however, provide interest income exempt from income tax.

Tips for Beginner Bond Investors

1. Start Small: Begin with small denominations and understand how the bond market works.

2. Check Ratings: Prefer highly rated (AAA or AA) bonds for stability.

3. Diversify: Don’t invest all funds in one issuer or bond type.

4. Understand Tenure: Match the bond’s maturity with your financial goals.

5. Review Liquidity: If you may need funds early, choose bonds with an active secondary market.

FAQs on Investing in Bonds in India

1. What is the minimum amount required to invest in bonds in India?

Depending on the issuer, bonds can start from ₹1,000 or ₹10,000, making them accessible to retail investors.

2. Are bonds safer than mutual funds or stocks?

Generally, bonds carry lower risk compared to equities or mutual funds, but they are not completely risk-free.

3. Can I sell bonds before maturity?

Yes, you can sell listed bonds through the secondary market, subject to liquidity.

4. Do bonds provide monthly income?

Some bonds offer monthly, quarterly, or annual interest payouts depending on their structure.

5. Where can I view available bonds in India?

You can explore listed and unlisted bonds on SEBI-registered OBPP platforms through NSE/BSE portals.

Conclusion

Bonds are a cornerstone of a balanced investment strategy, offering predictable returns, lower volatility, and portfolio diversification. For beginners, understanding the basic bond concepts, risks, and tax implications is the first step toward informed investing.

As India’s bond market becomes more accessible in 2025, platforms are helping investors explore fixed-income opportunities with transparency and regulatory assurance.

Disclaimer

This blog is intended solely for educational and informational purposes. The bonds and securities mentioned herein are illustrative examples and should not be construed as investment advice or personal recommendations. BondScanner, as a SEBI-registered Online Bond Platform Provider (OBPP), does not provide personalized investment advice through this content.

Readers are advised to independently evaluate investment options and seek professional guidance before making financial decisions. Investments in bonds and other securities are subject to market risks, including the possible loss of principal. Please read all offer documents and risk disclosures carefully before investing.