Corporate bonds are a popular investment option for individuals seeking steady income and portfolio diversification. They offer higher returns compared to government bonds and fixed deposits while maintaining a relatively low risk profile. If you’re wondering how to buy corporate bonds, this guide will walk you through the steps and considerations for bonds investment in India.
What Are Corporate Bonds?
Corporate bonds are debt instruments issued by companies to raise funds for business operations, expansions or refinancing existing debt. When you invest in a corporate bond, you lend money to the issuing company in exchange for periodic interest payments (coupons) and the return of the principal amount upon maturity. These bonds vary in terms of tenure, interest rates and risk levels, offering flexibility to investors.
Why Invest in Corporate Bonds?
- Higher Returns
Corporate bonds generally offer higher interest rates than government bonds or fixed deposits. - Regular Income
They provide periodic interest payments, making them suitable for investors seeking steady cash flow. - Diversification
Corporate bonds add stability to portfolios dominated by high-risk equity investments. - Variety of Options
The bonds investment in India market includes bonds from top-rated corporations to higher-yield options from mid-tier issuers.
How to Buy Corporate Bonds in India?
- Understand Your Investment Goals
- Determine your financial objectives, risk tolerance and investment horizon.
- Decide whether you prefer secured bonds (backed by collateral) or unsecured bonds (higher yield but riskier).
- Research Corporate Bonds
- Use online platforms or consult financial advisors to identify bonds that match your criteria.
- Evaluate the credit rating of the bonds, provided by agencies like CRISIL, ICRA or CARE. Higher-rated bonds (AAA or AA) are low-risk, while lower-rated bonds offer higher yields but come with increased risk.
- Choose the Investment Mode
- Primary Market
- Corporate bonds are issued in the primary market through public issues.
- Investors can subscribe to these bonds during the issuance period by applying through their bank or broker or online platforms.
- Secondary Market
- Once issued, bonds can be traded on stock exchanges like NSE and BSE.
- Retail investors can buy bonds in the secondary market through their demat account.
- Bond Platforms
- Several online platforms facilitate bonds investment in India, offering curated options for retail investors. Always buy from SEBI registered bond platforms.
- These platforms provide detailed insights into bond features, yields and credit ratings, simplifying the selection process.
- Open a Demat and Trading Account
- To trade corporate bonds, you need a demat and trading account with a registered broker or depository participant.
- Ensure the account is linked to your bank for seamless transactions.
- Compare Bond Features
- Analyze the bond’s yield, maturity, coupon rate and call/put options.
- Consider factors like tax implications and market liquidity.
- Make the Purchase
- For the primary market, apply directly through the issuer’s portal or your broker or bond platforms.
- For the secondary market, use your trading account to place buy orders on stock exchanges or through online platforms.
- Track Your Investment
- Monitor your bond investments for interest payments and price changes if you plan to trade before maturity.
- Keep an eye on the issuer’s credit rating, as any downgrades may affect the bond’s value.
Things to Keep in Mind
- Credit Risk
Corporate bonds carry the risk of issuer default. Opt for higher-rated bonds if you are risk-averse. - Liquidity
Some bonds may lack liquidity in the secondary market, making it harder to sell before maturity. - Interest Rate Risk
Bond prices are sensitive to changes in interest rates. Rising rates can decrease bond prices. - Tax Implications
Interest income from corporate bonds is taxable as per your income tax slab. Consider post-tax returns when evaluating bonds.
Benefits of Buying Corporate Bonds Online
With advancements in technology, it’s now easier than ever to buy corporate bonds online. SEBI regulated bonds platforms like IndiaBonds make buying corporate bonds a breeze.
These platforms offer:
- Ease of Access: Browse a wide range of bonds with detailed information at your fingertips.
- Transparency: Compare yields, maturities and credit ratings before investing.
- Seamless Transactions: Buy bonds instantly using your demat account.
- Expert Insights: Many platforms provide research reports and recommendations, helping you make informed decisions.
Conclusion
Corporate bonds are an excellent choice for investors seeking a balance between risk and return. By understanding how to buy corporate bonds and using the available online tools, you can make smart investment decisions that align with your financial goals. Whether you’re a seasoned investor or a beginner, the growing market for bonds investment in India offers opportunities to enhance your portfolio with stability and steady income.