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When looking at corporate bond options in India, you have likely noticed that not all Non-Convertible Debentures (NCDs) are created equal. Some NCDs pay a coupon that is fixed throughout the entire tenor of the NCD. Others pay a coupon that resets every few months, like a floating-rate note.
Both methods can generate a fixed income stream in the Indian corporate debt market, but it is important to consider the interest rate cycle to determine which method is best suited for you. The Indian corporate bond market mobilized over ₹9 lakh crore in FY26, and being able to differentiate between fixed- and floating-rate NCDs and how they behave with respect to changes in interest rates can greatly improve your portfolio. Let’s take a look.
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What Are NCDs, and Why Does the Rate Cycle Matter?
An NCD, or non-convertible debt, is a debt instrument used by companies to raise money without equity dilution, which cannot be converted into shares. NCDs have become a major component of the capital markets in India. As per the SEBI Chairman, Tuhin Kanta Pandey, the outstanding corporate bonds have increased from around ₹17.5 lakh crore at the end of FY15 to ₹59 lakh crore in FY26 [1], at a compound annual growth rate of around 12%. Within this market, NCDs constitute a significant portion, especially public NBFC and HFC issuances that allow retail investors to make direct purchases.
The attractiveness of a fixed coupon compared to a floating coupon is determined by the interest rate cycle (the fluctuations in the RBI’s repo rate over time). When there is an expectation of a decrease in interest rates, it is advantageous toset a fixed coupon. Conversely, when there is an expectation of an increase in interest rates, a floating coupon that adjusts upward can work in your favor.
Fixed Rate NCDs: Locking In Certainty
A fixed rate NCD with a fixed coupon rate means that rate will not change for the entire term of the NCD. This is useful for people who need a stable income, such as retirees.
For example, the latest public NCD issue from an NBFC offered fixed coupons for 24-, 36-, and 60-month tenures, with effective yields in the range of 8.7% to 9.0% p.a. depending on the payout option chosen. Once issued, that number stays locked in even if the RBI cuts or hikes rates later.
The trade-off: should the central bank raise rates after your investment, other fixed income securities issued later will have a more competitive coupon than yours, and your NCD’s secondary market value might also dip.
Floating Rate NCDs: Riding the Rate Cycle
Floating rate NCDs reset their coupons periodically, usually tying it to a benchmark such as the RBI repo rate, the 91-day Treasury Bill yield, or a bank’s base/reference rate plus a fixed spread. As the benchmark moves, so does your payout.
Some NBFCs have used this structure specifically to manage funding costs across the rate cycle. One large gold-loan NBFC, Muthoot Finance, planned to raise up to ₹2,000 crore [2] through three-year floating-rate bonds in 2026, with the coupon linked to the 91-day Treasury Bill yield. From an investor’s perspective, if the RBI resumes raising interest rates, the benchmark will increase and so will the coupon. This is more advantageous than having a coupon staying stuck at a rate set months or years earlier.
The trade-off here is uncertainty: your income isn’t fixed, and in a falling rate environment, your returns shrink along with the benchmark.
Fixed vs. Floating NCDs: A Quick Comparison
| Parameter | Fixed Rate NCD | Floating Rate NCD |
| Coupon behavior | Stays constant till maturity | Resets periodically with benchmark |
| Best suited when | Rates are high/peaking, expected to fall | Rates are low/rising, expected to climb. |
| Income predictability | High | Variable |
| Reinvestment risk | Higher (if rates rise) | Lower |
| Typical benchmark | Not applicable | Repo rate, T-bill yield, bank base rate |
| Popular with | Income-focused, retail investors | Institutional and rate-cycle-aware investors |
Latest Bond Updates:
- Fixed vs. Floating Rate NCDs: How Rate Cycles Impact Corporate Debt Returns
- Call vs. Put Options in Corporate Bonds: A Retail Investor’s Guide
- Bond Laddering in a Falling Rate Environment: A Guide for Indian Investors
How India’s Current Rate Environment Fits In
As of September 2026, the RBI has held the repo rate steady at 5.25%, maintaining a neutral policy stance after a series of rate cuts through 2025. A few things worth keeping in mind in this environment:
- With the repo rate having dropped from the high 6.5% in 2024, many issuers are offering fixed coupons in the 8.5-10%+ range on their rated NCDs, reflecting credit spread over the risk-free rate rather than just the repo rate itself.
- Fixed-rate NCDs benefit from a neutral-to-easing stance since locking in today’s coupon protects you if rates fall further.
- Floating rate NCDs are more appealing if you think the RBI will raise rates again, because the coupon will increase along with the benchmark.
- Credit quality still matters more than rate-cycle timing. SEBI data shows nearly 85–90% of bond issuances are concentrated in AAA/AA-rated paper, so it’s worth checking where an issue sits before comparing yields.
Which One Fits Your Portfolio?
There’s no universally “better” choice—it depends on your view and your goals:
- If you prefer stable income, if you are risk averse, or if you think rates will continue to decline, then choose fixed-rate NCDs.
- Choose floating rate NCDs if you’re comfortable with variable income, want protection against future rate hikes, or are investing for the medium-to-long term where reinvestment flexibility matters.
- If you are unsure about the direction of the cycle, choose both, as a blend of both reduces the risk of betting wrong on rate direction.
Fixed vs. Floating Rate NCDs Frequently Asked Questions
A fixed-rate NCD pays a predetermined coupon throughout its tenure, while a floating-rate NCD has a coupon that changes according to a specified benchmark or reference rate.
A fixed-rate NCD can benefit more from falling rates because its coupon remains locked at the higher rate. If its market price rises, investors may also benefit from capital appreciation if they sell before maturity.
A floating-rate NCD may be better positioned, provided its coupon resets upward in line with its benchmark. The actual benefit depends on the reset frequency, benchmark, and spread specified in the issue terms.
No. The contractual coupon on an existing fixed-rate NCD normally remains unchanged. However, its market price can move as investors reassess the value of its fixed cash flows.
No. Floating-rate structures can reduce sensitivity to changes in market rates, but they do not eliminate interest-rate risk. The coupon may reset with a lag, or the benchmark may not move exactly in line with the market rate relevant to the investor.
Sources
- Outlook Money — SEBI Chairman Highlights Four Major Gaps In Corporate Bond Market
- Economic Times — Muthoot Finance plans floating-rate bond issue of ₹2,000 crore
Disclaimer
Fixed returns do not constitute guaranteed or assured returns. Investments in corporate debt securities and municipal debt securities/securitized debt instruments are subject to credit risks, market risks, and default risks, including delay and/or default in payment. Read all the offer-related documents carefully. This blog/article should not be construed as financial advice or as an offer or recommendation to buy or sell any security or any products/services of/on GoldenPi or any product/services of its third-party client(s). For a detailed calculation of YTM, visit our website. T&C’s Apply.
