☎ +91 98890 38100 ✉ info@investaxindia.com
Tax • GST • Compliance
Investax India
Fixed income and savings

Bonds and Debentures

Lend to a company or government for a fixed period and earn interest along the way.

Read the guide FD Calculator
Regulator
SEBI (listed bonds), RBI (government bonds)
Minimum
Many listed bonds have a face value of ₹10,000
Where to buy
Exchanges, public issues or SEBI-registered online bond platforms
Returns
Fixed or floating coupon plus any gain or loss on price
Risk level: Low to moderate

Ranges from low (top-rated PSU bonds) to high (low-rated corporate bonds). The credit rating matters most.

What is it?

A bond is a loan you give to the issuer. In return the issuer pays interest, called the coupon, at set intervals and repays the face value on the maturity date. Debentures are bonds issued by companies; secured debentures are backed by specific assets.

Bond prices move in the opposite direction to interest rates. If rates rise after you buy, your bond's market price falls, and vice versa. If you hold to maturity and the issuer pays in full, those price swings do not matter to you.

How it works

  1. You buy a bond at its face value in a new issue, or at the market price on the exchange.
  2. You receive coupons on the schedule (monthly, quarterly, half-yearly or yearly).
  3. At maturity the issuer repays the face value.
  4. Yield to Maturity (YTM) is the total return if you hold until maturity and all payments are made.

Types

PSU and public financial institution bondsIssued by government-owned companies such as power and rail financiers.
Corporate bonds and NCDsIssued by companies and NBFCs, rated from AAA (highest safety) downwards.
Tax-free bondsOlder PSU issues whose interest is tax-free; now available only on the exchange.
Capital gains bondsFive-year bonds from specified PSUs that let you save tax on long-term gains from selling land or buildings, up to ₹50 lakh.
Zero-coupon and perpetual bondsPay no regular interest, or have no fixed maturity. Perpetual bonds carry extra risk.

Benefits and risks

Benefits

  • Predictable income if held to maturity.
  • Usually higher interest than bank deposits for similar terms.
  • Credit ratings give a standard measure of risk.
  • Adds stability to an equity-heavy portfolio.

Risks and drawbacks

  • Default risk: the issuer may delay or fail to pay. Lower ratings mean higher risk.
  • Interest-rate risk if you sell before maturity.
  • Many bonds trade rarely, so selling early can be hard or costly.
  • Not covered by deposit insurance.

How it is taxed

  • Interest is added to your income and taxed at your slab rate; TDS may apply.
  • Listed bonds held over 12 months: gains taxed at 12.5%; earlier at your slab rate.
  • Unlisted bonds and debentures: gains taxed at your slab rate whatever the holding period.
Rules for FY 2026-27, reviewed November 2026. Surcharge and cess apply on top. Tax rules change, so confirm before you file. Our tax team can help with your return.

Who it may suit

Investors who want regular income or a known amount on a known date, and who understand credit ratings and stick to issuers they are comfortable with.

Getting started

  1. Decide your holding period and match the bond's maturity to it.
  2. Check the credit rating, the rating agency's latest report and the issuer's finances.
  3. Compare YTM, not just the coupon, and check how often the bond trades.
  4. Buy only through exchanges, public issues or a SEBI-registered Online Bond Platform Provider.

Common questions

Why does a 12% bond look attractive but feel risky?

Higher yields pay you for higher risk. A bond yielding far above government bonds of the same maturity usually has a lower rating or weak finances.

What is the difference between coupon and yield?

The coupon is the fixed interest on the face value. The yield is your actual return based on the price you pay. Buy above face value and your yield is below the coupon.

This guide is general education, not investment, tax or legal advice, and does not recommend any product. Investments in securities markets are subject to market risks; read all related documents carefully before investing.