Corporate Bonds vs SDIs: How Do They Differ for Retail Investors?

If you’re exploring fixed-income investments, you’ve likely come across corporate bonds and securitised debt instruments (SDIs). Both let you earn regular returns, but they differ in structure, risk, and diversification. Corporate bonds involve lending money to a company for a fixed interest, while SDIs pool loans like home or business receivables into tradable securities. 

Understanding SDIs vs. bonds helps you compare stability, yield potential, and credit exposure, so you can see which instrument may suit your investment approach as a retail investor in India. Keep reading to find out more about the key differences between SDIs and corporate bonds. 

What Are Corporate Bonds?

Corporate bonds are fixed-income instruments issued by companies to raise capital for business needs such as expansion, operations, or refinancing. When you invest in a corporate bond, you lend money to the company for a specific period in exchange for fixed interest payments and the return of your principal at maturity.

Here’s how corporate bonds work:

• The company pays interest, called a coupon, at regular intervals.
• The bond’s return depends on the issuer’s credit quality and market rates.
• Investors can choose from different tenures, ratings, and yields based on their risk preference.

What Are Securitised Debt Instruments (SDIs)?

Securitised Debt Instruments (SDIs) are asset-backed securities created when banks or NBFCs pool together loans or receivables and convert them into tradable investment products. These could include home loans, vehicle loans, or MSME receivables. The pooled assets are transferred to a Special Purpose Vehicle (SPV), which issues Pass-Through Certificates (PTCs) to investors.

Here’s how SDIs work:

• The SPV collects repayments from borrowers and distributes them to investors.
• Each SDI tranche has a defined yield, maturity, and risk level.
• Investors earn periodic payouts from interest and principal repayments on the pooled loans.

Corporate Bonds vs SDIs: Key Differences

As a retail investor, you should know the key differences between corporate bonds and SDIs. The following table on SDIs vs. bonds sums these up:

Parameter	Corporate Bonds	Securitised Debt Instruments (SDIs)
Nature	Issued by private or public companies to raise funds	Issued by Special Purpose Vehicles (SPVs) after pooling and securitising loans or receivables
Asset Backing	Not backed by specific assets; relies on the company’s financial strength	Backed by underlying assets such as loans, leases, or receivables in the securitised pool
Structure	Debt security where investors lend to the company	Represents ownership in a pool of income-generating assets
Risk Exposure	Depends on the credit quality of the issuing company	Maybe comparatively lower as risk is spread across a diversified loan pool
Payment Source	Interest and principal repaid by the issuing company	Payouts come from the cash flows of the underlying assets
Rating	Based on the issuer’s creditworthiness (AAA, AA, etc.)	Based on the quality and performance of the asset pool
Diversification	Exposure to a single company	Exposure to multiple borrowers or loans within the pool
Yield Potential	Stable but lower than equities; varies by issuer rating	Higher yield potential linked to the asset risk and tranche structure
Taxation	Interest income taxed as per your income slab 10% TDS applies	Taxable 10% TDS for NDCs and 25% for PTCs

Benefits and Risks of Corporate Bonds

Benefits

• Stable income: You receive regular fixed-interest payments.
• Lower volatility: Corporate bond prices tend to fluctuate less than stocks.
• Choice: You can select bonds based on tenure, credit rating or desired yield.

Risks

• Credit risk: If the company fails or goes bankrupt, you may lose interest or principal.
• Interest-rate risk: When market rates rise, your bond’s resale value may drop.
• Liquidity event risk: The issuer’s cash flow problems may delay or reduce payments.

Benefits and Risks of SDIs

Benefits 

• Diversified exposure: Your money is invested across a pool of loans instead of a single borrower, lowering concentration risk.
• Higher yield potential: SDIs can offer better returns than traditional fixed-income products of similar tenure.
• Customised risk levels: You can choose tranches based on how much risk and return you’re comfortable with.
• Access to new markets: Retail investors can now invest in asset-backed instruments that were once limited to institutions.

Risks

• Credit risk: If borrowers in the loan pool default, payouts may reduce or get delayed.
• Prepayment risk: Early repayment of loans can affect the timing of interest and principal payouts.
• Liquidity risk: Some SDIs may not have an active secondary market, meaning poor liquidity.
• Market risk: Changes in interest rates or economic outlook can impact the market value of SDIs.

How to Choose Between Corporate Bonds Vs. SDIs as a Retail Investor?

Your choice between corporate bonds and SDIs depends on your goals, risk tolerance, and liquidity needs. Both can help you diversify returns if chosen carefully.

• Clarify your goal: Corporate bonds may suit investors seeking stable income, while SDIs can offer higher yield potential.
• Check credit quality: Since both are debt instruments, credit quality check is a must. Always review the issuer’s rating for bonds, and the loan pool and SPV quality for SDIs.
• Review liquidity: Corporate bonds may have better resale options, while SDIs can involve limited secondary market access. So, if you anticipate needing your investment soon, keep liquidity in mind.
• Understand payouts: Bonds generally provide fixed interest, while SDI payouts vary with borrower repayments.

So, Corporate Bonds vs. SDIs: Which is Better for a Retail Investor?

Corporate bonds and SDIs serve different purposes for retail investors. Bonds may suit you if you prefer predictable income and lower risk. SDIs, being backed by a pool of diversified loans, can offer higher yields and better risk-adjusted returns but may involve prepayment and liquidity risks. 

Both options carry some credit risk, so reviewing the issuer, structure, and asset quality before investing can help you choose what aligns with your financial goals.

If you want to earn fixed returns with corporated bonds, you can explore options on GoldenPi with returns as high as 15%! 

FAQs on Corporate Bonds Vs. SDIs

What is the main difference between corporate bonds and SDIs?

Corporate bonds are debt securities issued by companies to raise funds. SDIs are asset-backed instruments created by pooling loans such as vehicle, home, or MSME loans into tradable securities. Bonds depend on one issuer, while SDIs derive income from multiple borrowers.

Are SDIs riskier than corporate bonds?

SDIs carry credit and prepayment risks since returns depend on how the pooled borrowers perform. However, diversification across many loans reduces the overall risk. Corporate bonds rely on a single company’s credit strength, so default risk is concentrated with one issuer.

How do corporate bonds vs. SDIs compare in terms of liquidity?

Corporate bonds usually have better secondary market liquidity, allowing easier exit before maturity. SDIs can be less liquid because they are newer instruments and traded less frequently, so selling early may not always be possible.

What types of assets are securitised in SDIs?

SDIs typically include receivables from loans such as home, auto, gold, education, or MSME loans. They may also be backed by lease rentals, invoice receivables, or consumer durable loans, depending on the structure and originator.

Disclaimer:

This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.

Bonds or non-convertible debentures (NCDs) are regulated by the Securities and Exchange Board of India and other government authorities. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.