Most guides to bonds explain the vocabulary and stop there. This one is meant to take you from “what is a bond” to placing and tracking an order, with the tax and risk detail that matters in the current financial year. It is education, not a recommendation to buy any particular security.
How to invest in bonds, step by step
- Complete KYC and open a demat account. Bonds are held in dematerialized form. You need a PAN, Aadhaar, a bank account and a demat account with a depository participant. Most online platforms combine these in one flow.
- Decide what the money is for. Monthly income, a goal three years away, and parking surplus funds are different jobs and point to different tenures and payout frequencies. Match the maturity to the date you need the money, not to the highest yield on the screen.
- Choose the bond type. Government securities, PSU bonds, and corporate bonds of different ratings sit at different points on the risk and yield spectrum. Decide how much credit risk you are comfortable carrying before you look at yields.
- Check the credit. Read the rating and the rating agency’s latest rationale, not just the letter. Note the date, the outlook, whether the bond is senior or subordinated, and what security backs it. The next section covers this in detail.
- Look at the yield properly. Compare YTM, not the coupon, and check whether the quoted price is clean or dirty. Compare against other bonds of similar rating and maturity, including other issues from the same company.
- Place the order. Choose the number of units, confirm the total payable including accrued interest, and pay through your bank or UPI. Settlement runs through the exchange’s clearing corporation, typically within one to two working days.
- Track the payouts. Interest is credited to the bank account linked to your demat account on the payment dates. Check the TDS deducted against Form 26AS and your Annual Information Statement before filing your return.
- Plan the exit. At maturity the units are redeemed automatically, and the money is credited to your linked bank account. If you want out earlier, you can sell on the exchange, where the price depends on yields, the issuer’s credit view and how many buyers are active that day.
If you are new to this, GoldenPi’s find your first bond tool lets you filter by amount and tenure, and the bond glossary explains the terms you will meet.
What is different about bonds in 2026-27
Four things have changed since last year, and each affects how you should think about a purchase.
The rate cycle has turned.
On 7 October 2026 the RBI’s Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% and moved its stance from neutral to calibrated tightening. It was the first hike since February 2023, and the next meeting is scheduled for 2 to 4 December 2026. The 10-year government bond yield has been hovering around 7%, touching about 7.17% in late September, its highest level in nearly two years. For a new buyer, higher yields mean better starting income. For someone who already holds a bond, they mean a lower market price. Both are true at once, and the rest of this guide keeps coming back to that.
The tax law has a new number.
The Income-tax Act, 2025, replaced the 1961 Act from 1 April 2026. For bond investors, it mostly renumbered provisions: interest is still taxed at your slab rate, and gains on listed bonds held beyond 12 months are still taxed at 12.5%. More on this below.
Access keeps widening.
The ₹10,000 face value has brought corporate bonds within reach of ordinary savers, and the Union Budget 2026-27 introduced a market-making framework aimed at improving secondary-market liquidity in corporate bonds. In August 2026 SEBI also put out a proposal for a distributor-style framework for corporate bond platforms, including a cap of 2.5% on fees charged to investors. That is a proposal, not a rule, so watch for the final version.
Sovereign Gold Bonds are no longer an option for new investors.
The government has stopped issuing fresh tranches, so existing SGBs can only be bought and sold on the exchanges.
Bond basics in six terms
| Term | What it means | Example |
|---|---|---|
| Face value | The amount the issuer repays at maturity and the base on which interest is calculated | ₹10,000 per debenture |
| Coupon | The fixed interest rate stated on the bond | 9% a year, paid monthly, quarterly or annually |
| Maturity | The date the principal is repaid | 30 October 2029 |
| Price | What the bond trades at, quoted per ₹100 of face value. Clean price excludes accrued interest; dirty price includes it | ₹97.98 clean, ₹98.13 dirty |
| Current yield | Annual coupon divided by the clean price | 9.25 ÷ 97.98 = 9.44% |
| Yield to maturity (YTM) | The annualised return if you buy at today's price, hold to maturity and receive every payment on time | 10.5% |
The last two are the numbers that matter most when comparing bonds, and they are often confused. A bond with a 9% coupon bought at a discount to face value has a YTM above 9%, because you also collect the gain when it redeems at par. A bond bought at a premium has a YTM below its coupon.
Why prices and yields move in opposite directions
A bond's coupon is fixed. When market yields rise, a bond paying an older, lower coupon becomes less attractive, so its price has to fall until its yield matches what new bonds offer. As a rough guide, a 3-year bond loses around 2.5% of its price for every 1 percentage point rise in yields, and a 10-year bond loses around 7%. If you hold to maturity, the price changes net out because you are repaid the face value. If you need to sell earlier, they decide what you receive.
Types of bonds available to Indian investors
| Type | Issuer | Credit profile | Interest taxable? | Things to know |
|---|---|---|---|---|
| Government securities (G-Secs) and T-Bills | Central government | Sovereign obligation | Yes, at slab rate | Interest paid half-yearly on G-Secs. Bought through RBI Retail Direct or a broker |
| State Development Loans (SDLs) | State governments | State obligation, usually priced slightly above G-Secs | Yes | Not the same as a sovereign guarantee from the Centre |
| PSU and PSU bank bonds | Government-owned companies | Generally AAA to AA range | Yes | Includes older tax-free series that trade in the secondary market |
| Corporate bonds and NCDs | Private companies, NBFCs, housing finance firms | AAA down to A and below, depending on the issuer | Yes | Wide range of yields and risks. Secured or unsecured, senior or subordinated |
| Tax-free bonds | PSUs such as infrastructure and power financiers | Mostly AAA | No, interest is exempt | No fresh issues. Bought in the secondary market, usually at lower yields than taxable bonds |
| Bank bonds (Tier 2, AT1, perpetual) | Banks | Varies | Yes | Complex structures with call options and, for AT1, loss-absorption features. Read the terms closely |
| Sovereign Gold Bonds | Government of India | Sovereign | Interest taxable, redemption gains exempt at maturity | Secondary market only. Price tracks gold |
| Bond ETFs and target-maturity funds | Fund houses | Depends on the portfolio | Per fund taxation rules | An indirect route with no single maturity date of its own |
If you are exploring a specific category, GoldenPi's collections pages group them by theme, such as NBFC bonds, AAA-rated bonds, tax-free bonds, government bonds and bonds paying monthly income.
Where to buy bonds in India
| Route | What you can buy | How it works |
|---|---|---|
| RBI Retail Direct | G-Secs, T-Bills, SDLs | Free account directly with the RBI, with no intermediary. Purchases happen on the primary auction or the secondary market |
| GoldenPi: Online bond platforms (OBPPs) | Listed corporate bonds, PSU bonds, tax-free bonds, G-Secs | GoldenPi is a SEBI-registered platforms where you browse, compare and buy on the exchange. Units land in your demat account |
| Stock brokers | Listed debt on the BSE and NSE debt segments | Order through the broker's app or desk, often through the request-for-quote system |
| NCD public issues | Fresh issues from companies | Apply during the subscription window through UPI or ASBA. Units are allotted and listed |
| Mutual funds and ETFs | Debt funds, bond ETFs | Indirect exposure through a fund, with the fund manager choosing the bonds |
Whichever route you choose, check that the platform is registered with SEBI, that your units will be credited to a demat account in your own name, and that you understand what fees apply.
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How to read a bond's credit quality
A credit rating is an agency's opinion of an issuer's ability to pay on time. In India the main agencies are CRISIL, ICRA, CARE, India Ratings, Acuite and Infomerics. Broadly, the scale works like this:
| Rating category | What it indicates |
|---|---|
| AAA | Highest degree of safety regarding timely payment |
| AA | High degree of safety |
| A | Adequate degree of safety, low credit risk |
| BBB | Moderate degree of safety. The lowest investment-grade category |
| BB and below | Speculative grade, with higher risk of default |
| D | In default |
The letter is a starting point. Before relying on it, check these:
- Date and outlook. A rating from two years ago says little. Look for the latest rationale, and whether the outlook is stable, positive or negative.
- Rating for that instrument. A company can have several issues, and rationales sometimes predate the specific bond you are looking at.
- Seniority and security. Senior secured debt ranks ahead of subordinated debt in a recovery. Check what assets are charged and the security cover. A cover of 1.0x means the charged assets match the amount outstanding, with no extra cushion.
- The issuer's numbers. For an NBFC, that means asset quality, capital adequacy, leverage, liquidity and how concentrated the loan book is. The rating agency's rationale lays these out in plain terms.
- The debenture trustee. The trustee acts for bondholders and enforces the security if the issuer defaults.
For a worked example of how this looks in practice, see our credit walkthrough of a gold loan NBFC's NCD.
Must Read:
How to invest in Corporate Bonds
How to Invest in Government Bonds
How to Invest in High Yield Bonds
How to invest in 30% Tax efficeint Bonds
How bond returns are taxed in FY 2026-27
The rates below are as understood at the date of writing. Check the current position or speak to a tax advisor before acting.
- Interest is taxed at your slab rate, under Income from Other Sources.
- TDS of 10% applies to interest on securities once the interest paid by one issuer crosses the annual threshold, which stands at ₹10,000. The old exemption for listed debentures held in demat form was removed from 2023. For NRIs the rate is higher. TDS is credit against your tax and can be claimed when you file.
- Declaration to avoid TDS. Investors whose total income is below the taxable limit can submit the prescribed declaration (Form 121 under the new Act) to the issuer's registrar or trustee.
- Capital gains on listed bonds sold after more than 12 months are long-term and taxed at 12.5% without indexation. Held 12 months or less, they are short-term and taxed at your slab rate.
- Unlisted bonds and debentures are treated as short-term regardless of how long you hold them, taxed at your slab rate.
- Tax-free bonds pay interest exempt from tax. Capital gains on a sale are still taxable.
A quick way to see the effect: a bond with a 10% YTM taxed at the 30% slab rate plus 4% cess leaves roughly 6.9% after tax on the interest portion. The same bond for a person in a lower slab leaves more. When comparing a taxable bond against a tax-free one, compare the post-tax figure for your own slab.
For the detail, read GoldenPi's explainers on what the new Income Tax Act 2025 changes for bond investors and the tax filing requirements for bond investors.
The risks, stated plainly
- Credit risk. The issuer may delay or default on interest or principal. Ratings reduce your uncertainty but do not remove it.
- Interest rate risk. Prices fall when yields rise, and longer bonds fall more. With the RBI now in a tightening stance, this matters more than it did a year ago.
- Liquidity risk. Many corporate bonds trade thinly. You may not find a buyer at the price you want on the day you want to sell.
- Reinvestment risk. YTM assumes you can reinvest each coupon at the same rate. If yields fall, you may not be able to.
- Structure risk. Call options, subordination, perpetual terms and loss-absorption clauses can change what you receive. Read the information memorandum.
- Concentration risk. Holding too much with one issuer or one sector makes one bad event matter far more than it should.
An important distinction for savers used to bank deposits: deposit insurance of up to ₹5 lakh per depositor per bank covers bank deposits, not bonds or debentures. Protection for bondholders comes from the security on the bond, the trustee, and SEBI's regulation of issuers and platforms.
Bonds, fixed deposits and debt mutual funds side by side
| Bonds | Bank fixed deposits | Debt mutual funds | |
|---|---|---|---|
| Return | Fixed coupon. Total return depends on purchase price | Fixed rate for the term | Variable. Depends on the portfolio |
| Interest tax | Slab rate | Slab rate | Gains taxed at slab rate for units bought after April 2023 |
| Capital gains | Listed bonds held over 12 months: 12.5% | Not applicable | Slab rate |
| Liquidity | Sell in the secondary market, price varies | Premature withdrawal usually allowed, often with a penalty | Redeem at NAV, subject to exit loads |
| Deposit insurance | None | Up to ₹5 lakh per depositor per bank | None |
| Price movement | Yes, before maturity | No | Yes, daily NAV |
| Minimum | From ₹10,000 face value in many cases | Often ₹5,000 or less | From ₹500 to ₹1,000 |
They are different tools with different risks, and many investors hold more than one. Our bond vs fixed deposit comparison lets you test the numbers for your own amount and tenure.
Building a bond portfolio
Three ideas come up repeatedly when practitioners talk about structuring bond holdings. They are frameworks, not instructions.
Laddering. Instead of putting everything into one maturity, you spread money across maturities, for example one, two, three, four and five years. As each bond matures, you can reinvest at whatever yields prevail. A ladder reduces the effect of any single interest rate view being wrong, which is useful when the rate direction is uncertain.
Matching cash flows. If you need money in March 2028 for a specific expense, a bond maturing around then removes the price risk, because you are repaid at face value regardless of what yields do in the meantime.
Limiting single-issuer exposure. A common practitioner rule of thumb is to cap any one issuer at a modest share of your fixed income allocation, often in the 5% to 10% range. The right number depends on the rating, your wealth and your risk tolerance.
Common mistakes to avoid
- Comparing coupons instead of yields to maturity.
- Reading "secured" as "guaranteed".
- Ignoring the date and outlook on a rating.
- Forgetting accrued interest when calculating the amount payable.
- Choosing a maturity that does not match when you need the money.
- Concentrating in one issuer because it offers the highest yield.
- Overlooking TDS and the need to report interest in your return.
- Assuming you can always sell at the price you paid.
A checklist before you invest
- Is my KYC complete and the demat account in my own name?
- Do I know exactly when I need this money back?
- Have I read the latest rating rationale, including date and outlook?
- Do I know whether the bond is senior or subordinated, and what secures it?
- Have I compared YTM with similar bonds and with the same issuer's other issues?
- Do I know the payout dates and how TDS will be handled?
- Can I live with the price falling if I have to sell early?
- Does one issuer or sector make up too large a part of my fixed income holdings?
How to Invest in Bonds 2026-27 FAQs
For many privately placed corporate bonds, the minimum face value is ₹10,000 per unit, though the amount payable depends on the price and the number of units required. Government securities through RBI Retail Direct start from a similar level. Check the specific bond's terms.
Yes, for listed bonds and government securities bought through brokers or online bond platforms. RBI Retail Direct provides its own gilt account route for government securities.
They carry different risks. Bonds depend on the issuer's credit and can change in price before maturity, and they have no deposit insurance. Bank deposits are insured up to ₹5 lakh per depositor per bank. Which suits you depends on your goal, horizon and risk tolerance.
Yes, on the exchange. The price depends on prevailing yields, the issuer's credit view and demand, so it can be above or below what you paid. Liquidity differs widely between bonds.
The debenture trustee acts for bondholders and can enforce the security on a secured bond. Senior secured holders rank ahead of subordinated holders. Recovery can take time, and recovery is not guaranteed.
The coupon is the fixed interest rate on the face value. YTM is the annualised return from your actual purchase price to maturity, so it reflects any discount or premium and the payout frequency.
The RBI raised the repo rate to 5.50% and signalled tighter policy, and markets repriced expectations. When yields rise, prices of existing bonds fall, while new bonds are issued at higher coupons.
Sources and disclosure
Rate and policy figures are from the RBI's MPC decision of 7 October 2026 and market reports of the following days. Yield levels are from market data reports dated late September 2026. Tax treatment reflects the Income-tax Act, 2025 effective 1 April 2026, and the rules for listed and unlisted bonds as applied in FY 2026-27. SEBI figures are from its circulars and consultation papers. All are accurate as of 2 November 2026 and can change.
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.
