What are the Types of Corporate Bonds in India?

Last Updated: 23 Oct 2025

When a company needs extra money, it can raise it by selling bonds to people. You lend the company money, it pays you interest on time, and it returns your principal later. If you like a steady income with moderate risk, corporate bonds can fit well in an Indian portfolio.

What are Corporate Bonds?

A corporate bond is a simple loan to a company. You buy the bond; the company pays you interest at regular intervals. On the maturity date, you get your principal back. This is not like shares, as with shares, you own part of the company – with bonds, you are a lender. In India, both private firms and government-backed companies issue bonds to fund projects and growth.

People often hear about types of corporate bonds when they start exploring debt options.

Types of Corporate Bonds Based on Credit Quality

• Investment grade: Usually rated from AAA down to BBB-. These bonds aim for safety and steady payouts. Yields are lower because the chance of default is considered low.
• High-yield (below investment grade): Rated BB+ or lower. They offer higher interest to make up for the higher risk. These may suit investors who can handle bumps along the way.
• Unrated: Some issuers skip ratings. That does not make them risky, but it does mean you should read the financials carefully and be patient about liquidity.

A clear corporate bond classification makes choices easier.

Types of Corporate Bond Based on Security

Security tells you whether the bond is backed by something tangible. If the issuer defaults, security improves your place in line when assets are sold.

• Secured bonds: Backed by assets or receivables. The company creates a charge on property, plant, cash flows, or other assets. Many listed NCDs fall in this bucket.
• Unsecured bonds: Not backed by specific assets. Here, you rely on the company’s overall financial health and cash flows.
• Guaranteed bonds: A third party promises to pay if the issuer does not. In India, this could be a parent company or a government-linked entity.

As you compare options, different types of corporate bonds suit different goals.

Types of Corporate Bond Based on Convertibility

Convertibility decides whether your bond can turn into equity later. This feature can add upside, but it also adds moving parts you should understand.

• Non-Convertible Debentures: These are plain-vanilla bonds. You get interest and principal, and that is it; these are very common for retail investors.
• Fully Convertible Debentures: Convert fully into shares after a set period. Interest tends to be lower because you may benefit from share upside.
• Partly Convertible Debentures: A part converts into shares, while the rest remains a bond till maturity.
• Optionally Convertible Debentures: Either you or the issuer has the right to convert under certain terms.

Types Based on Interest Payment

• Fixed-rate bonds: The coupon stays the same through the life of the bond. Planning income is easy.
• Floating-rate bonds: The coupon moves with a benchmark, such as a T-bill yield plus a spread. Your income adjusts when rates rise or fall.
• Zero-coupon bonds: Issued at a discount and redeemed at face value. There are no regular interest payouts; your gain is the difference.
• Step-up or step-down bonds: The coupon changes on a schedule. For example, it may rise after a few years.

You might wonder, what are the different types of corporate bonds? Let’s understand.

Types Based on Maturity and Seniority

• Short-term: Suits investors who prefer lower interest-rate risk and quicker principal return.
• Medium-term: A middle ground between yield and stability.
• Long-term: Often higher yields, but prices can move more when rates change.
• Perpetual: Common with certain bank bonds and can be complex, with features like loss absorption.

Seniority decides who gets priority if the company runs into trouble.

• Senior secured: Backed by assets and first in line among bondholders.
• Senior unsecured: Ahead of subordinated holders but behind secured creditors.
• Subordinated: Paid after senior holders. Higher risk, usually higher yield.

How to Invest in Corporate Bonds in India

You have a few easy routes, and each suits a different comfort level.

• Primary issues (public NCDs): Apply during the offer window via your broker or bank. Bonds are credited to your demat account after allotment.
• Secondary market: Buy or sell listed bonds on NSE or BSE, similar to shares. Check volumes and spreads before placing an order.
• Debt funds and ETFs: Prefer a basket instead of picking single bonds? A corporate bond fund or PSU debt fund spreads risk across issuers.

Before you put money in, do a quick, practical checklist:

• Read the term sheet. Note coupon, security, covenants, call/put options, and repayment schedule.
• Look at the issuer’s numbers. Cash flows, leverage, and interest coverage tell you a lot.
• Think about liquidity. Some bonds are easy to sell; others are better held to maturity.
• Know the taxes. Interest is taxed as per your slab. Capital gains rules depend on holding period and listing status.
• Match to your goals. If you want a monthly income, pick the right payout frequency. If you want stability, lean toward higher-rated, shorter-duration issues.

Conclusion

Corporate bonds can add steady income and help balance a portfolio that already holds stocks and bank deposits. Start with simple, well-rated issues; add complex features only when you’re sure how they work. Spread out maturities to manage risk and cash flow, and check ratings and company updates now and then. Slow and steady usually works best.

Frequently Asked Questions

What is the basic difference between bonds and shares?

With bonds, you’re lending money and expect interest plus your principal back. With shares, you own a part of the company, and your returns depend on profits and the market price. Bonds focus on steady income. Shares focus on growth and can move up and down more.

Are secured bonds always safe?

Secured bonds have collateral, which helps with recovery if things go wrong. That said, safety still depends on the issuer’s health, the quality of the security, and legal processes. Collateral improves your position, but it does not remove risk.

How do I choose between fixed and floating coupons?

If you want a predictable income, fixed coupons are straightforward. If you think interest rates may rise and you want income that adjusts, floating coupons can help. Your choice should match your view on rates and your need for steady cash flow.