How to Invest in Bonds: The Essential Guide to Building a Strong Portfolio

Stocks can be volatile, and FDs offer limited returns. Bonds provide a middle ground, serving as one of the safest and most reliable investment options, providing stability with predictable earnings.

When you invest in bonds, you lend funds to the Government or companies in exchange for regular interest, with the principal repaid at maturity. Since bonds cater to both conservative and growth-focused investors, they help build a diversified portfolio. 

This guide will walk you through the fundamentals of how to invest in bonds.

Types of Bonds in India

how to invest in bonds in India

Let’s understand the different types of bonds in India.

• Government bonds

Government bonds are issued by the Government of India through the Reserve Bank of India (RBI) and are among the safest bond investments for investors.

These bonds can be broadly categorised into:

• Treasury Bills (T-Bills): These are short-term bonds with maturities of 91 days, 182 days, or 364 days. 
• Government Securities (G-Secs): These are long-term bonds with maturities extending up to 40 years. They provide periodic interest payments (coupon payments).

• Corporate bonds

Corporate bonds are issued by private and public companies to raise funds for business expansion, project financing, or debt refinancing. Investing in corporate bonds typically offers higher returns compared to government bonds but comes with an inherent credit risk, as the repayment depends on the company’s financial health.

Credit rating agencies like CRISIL, ICRA, and CARE assess these bonds and assign ratings. AAA or AA ratings indicate lower risk, and lower-rated bonds (BBB or below) offer higher yields but greater default risk. 

• Sovereign gold bonds

They are issued by the RBI and are linked to gold prices, providing an alternative to physical gold investment. Investors earn interest and benefit from capital appreciation without the hassle of storing physical gold.

• Tax-saving bonds

These bonds are issued by government-backed institutions like NHAI (National Highways Authority of India), REC (Rural Electrification Corporation), and PFC (Power Finance Corporation).

Tax-saving bonds offer tax benefits under Section 10(15) of the Income Tax Act. Interest earned is tax-free, making them an attractive option for tax-conscious investors.

• PSU bonds

PSU or Public Sector Undertaking bonds are issued by government-owned corporations like NTPC, PFC, and IRFC. They are a relatively safer investment option compared to corporate bonds. However, they may offer slightly lower returns.

Benefits of Investing in Bonds

Here are the key advantages of investing in bonds:

• Capital preservation: Bonds provide a steady return with minimal risk of capital loss. Government bonds, in particular, are low-risk and ideal for conservative investors.

• Fixed income: You get regular interest payments at fixed intervals. This ensures a steady passive income stream.

• Diversification: Including bonds in your investment portfolio can help reduce overall risk and cushion against market fluctuations.

• Tax advantages: Certain bonds, such as tax-free bonds issued by the government or public sector enterprises, offer tax exemptions under Section 10(15) of the Income Tax Act on interest earnings. 

• Liquidity: While investors are required to hold bonds until maturity, you can sell them in the secondary market if you need funds.  

How to Invest in Bonds in India

The Indian bond market is broadly divided into two segments: the primary market and the secondary market. In the primary market, new bonds are issued and sold directly to investors by the Government, corporations, or other entities. This marks the first stage in a bond’s life cycle. 

Once bonds are issued in the primary market, they can be bought and sold among investors in the secondary market. This market allows investors to trade bonds before maturity, offering liquidity and flexibility.

Invest through OBPPs

The easiest and most accessible way for retail investors to invest in the Indian bond market is through Online Bond Platform Providers (OBPPs). These online platforms are registered with SEBI and allow buying and selling of bonds. 

Retail investors can sign up on OBPPs, like Aspero and GoldenPi, to explore different types of bonds, their maturity periods, credit ratings, and interest rates. This improves transparency and liquidity. 

Traditionally, investing in bonds required going through brokers or institutional channels, which often felt complex and opaque to retail investors. OBPPs change that by offering a user-friendly, transparent, and entirely online experience.

Most OBPPs also offer helpful filters and comparison tools so you can match bonds to your financial goals and risk profile.

Here’s how you can invest in OBPPs:

• Sign up on the platform.
• Complete the KYC verification process.
• Explore available bonds, compare their features, and select the one that suits your goals.
• Make the payment directly through net banking or UPI.
• Track your investments easily via the platform’s dashboard.

Research through SEBI’s Bond Central

Before you invest in bonds, it’s important to do proper research. SEBI’s Bond Central is a good place to start. It’s a centralized platform that provides complete information about all corporate bonds available in the Indian market.

You can search and filter bonds based on bond type, credit rating, issuer, interest rate, and maturity. Bond Central also offers detailed information for each bond, including a comparison of bond prices with G-secs and type of redemption. 

Comparison between OBPP and Bond Central:

Factors to Consider on How to Invest in Bonds in India

Several factors determine how safe, profitable, and suitable a bond is for your financial goals. Before making any investment, you should consider the following key factors:

• Credit rating 

Check credit ratings from CRISIL, ICRA, and CARE. AAA or AA-rated bonds are the safest, offering stable but moderate returns, while lower-rated bonds (BBB or below) carry higher risk yet promise potentially better yields. 

• Yield and coupon rate

The coupon rate is the fixed interest rate paid by the bond issuer to the bondholders (investors). Whereas, yield is the actual return earned, which changes based on the bond’s market price.

For stable returns, look for bonds with a high coupon rate and higher yield to maturity (YTM). 

• Tenure  

Bonds have different maturity periods, including:

• Short-term (<3 years): For quick access with some returns.
• Medium-term (3-10 years): Offers stability.
• Long-term (10+ years): For long-term wealth.

• Liquidity  

Some bonds can be easily bought and sold in the secondary market. Others require it to be held till maturity. For example: Government bonds and listed corporate bonds have better liquidity.

• Tax Benefits  

Tax-free bonds (issued by government-backed institutions like NHAI and PFC) have no tax on interest income. On regular bonds, the interest is taxed based on your income slab, similar to fixed deposits.

• Risk Tolerance 

Government bonds are the safest option, but returns are relatively low. Corporate bonds can offer higher returns but carry some default risk. If you are risk-averse, stick to AAA-rated corporate bonds. 

Looking to earn stable returns from bonds? Start with the right platform.

Bond investing offers predictable, fixed-income returns — but choosing the right bonds and platform is key. Evaluate each bond’s credit rating, yield, liquidity, and tax implications before investing.

Aspero makes this easy. We’re a SEBI-registered platform, fully integrated with NSE and BSE via the RFQ system, giving you access to a wide selection of investment-grade, senior secured bonds.

Use OBPPs (Online Bond Placement Platforms) like Aspero to explore, compare, and invest in bonds — all in just a few clicks.

📊 Transparent.
🔐 Secure.
📈 Returns up to 15%.

Your bond investment journey starts here — with Aspero.