The changing trend in the Indian financial market is the use of corporate bonds as an alternative investment opportunity available in the market that provides a balance between risk and return. Corporate bonds that have been traditionally sidelined by equities and fixed deposit (FDs) savings are gaining ground as an intelligent investment option among retail and institutional investors that offer steady income at relatively low volatility. But what are corporate bonds? Will they fit in your portfolio? So, let’s explore what are corporate bonds and whether you should invest in them or not.
What are Corporate Bonds?
Corporate bonds are the debt securities released by businesses to raise capital for a number of motives, including expansions, working capital, or purchases. When you buy a corporate bond, you are just lending money to the company and in the process, the company agrees to pay you back the principal amount of that loan at a particular maturity date and some periodic payment (this is called coupons) of interest money too.
Unlike stocks, you don’t get ownership in the company. Instead, you become a creditor. The interest rate, maturity period, and creditworthiness of the issuing company are key factors that determine the attractiveness and risk associated with a bond.
Types of Corporate Bonds in India
Corporate bonds come in various forms:
- Secured Bonds: Backed by company assets. Lower risk.
- Unsecured Bonds: Not backed by collateral. Higher returns but higher risk.
- Convertible Bonds: Can be converted into equity shares.
- Non-Convertible Debentures (NCDs): Cannot be converted into equity but offer higher interest rates.
SEBI (Securities and Exchange Board of India) regulates these instruments to ensure investor protection.
Why Are Corporate Bonds Becoming Popular in India?
With increasing awareness, rising interest rates, and better digital access to bond markets, more investors are exploring fixed-income options beyond FDs. According to SEBI data, the corporate bond market in India grew from ₹22 lakh crore in FY2018 to over ₹40 lakh crore in FY2024, indicating growing investor trust and market depth.
Factors fueling this trend include:
- Higher interest rates offered by corporate bonds vs. FDs
- Digital investment platforms offering seamless bond access
- The government pushes to deepen the corporate bond market
- More AAA-rated companies entering the market
Should You Invest in Corporate Bonds?
Here’s why corporate bonds might deserve a place in your portfolio:
1. Steady and Predictable Income
Corporate bonds offer fixed interest payments, making them ideal for investors seeking consistent income. Interest is usually paid semi-annually or annually, and returns are not affected by market volatility.
2. Higher Returns than Traditional FDs
While bank FDs currently offer an average return of 6%–7%, corporate bonds (especially those rated AA and above) can offer returns of 7.5%–10%, depending on the issuer and tenure.
3. Diversification
They help diversify your portfolio by reducing dependence on volatile assets like stocks. A mix of equities, FDs, mutual funds, and bonds ensures stability.
4. Risk Customization
You can choose bonds based on your risk appetite. AAA-rated bonds are the safest, while lower-rated bonds may offer higher returns for those willing to take on more risk.
5. Liquidity
Many listed corporate bonds can be sold on exchanges before maturity. While liquidity is not as high as stocks, digital platforms are making it easier to access the bond market.
Risks to Consider Before Investing
Despite their advantages, corporate bonds carry certain risks:
1. Credit Risk
There’s always the risk that the company may default on interest or principal. Hence, it’s important to check the credit rating (given by CRISIL, ICRA, CARE, etc.) before investing.
2. Interest Rate Risk
Bond prices are inversely related to interest rates. If the RBI hikes rates, bond prices in the secondary market may fall.
3. Liquidity Risk
Some corporate bonds may not have an active market. It may be difficult to exit before maturity without taking a price hit.
Who Should Invest in Corporate Bonds?
Corporate bonds are ideal for:
- Retirees looking for predictable income
- Professionals and salaried individuals seeking diversification
- HNIs and wealth managers aiming to balance risk and returns
- Young investors starting their journey with low-risk assets
Taxation on Corporate Bonds in India
Taxation depends on how long you hold the bond and your total income:
Interest Income: Taxed as per your income tax slab
Capital Gains:
- Short-term (held < 12 months): Taxed as per slab
- Long-term (held > 12 months): 10% without indexation (if listed)
If you’re investing via debt mutual funds or ETFs that include corporate bonds, taxation rules for mutual funds apply.
How to Invest in Corporate Bonds in India
You can invest in bonds via:
- Direct Purchase on BSE/NSE Debt Segment
- Bond brokers or aggregators
- Wealth management platforms
- Debt Mutual Funds or Corporate Bond Funds
How Fintech Supports Smarter Debt Investing
While fintech platforms are known for their flexible digital personal loans, they also empower customers with financial literacy and transparency. Whether you’re looking for credit solutions or investment insights, the platform:
- Educates users on managing debt responsibly
- Helps avoid financial pitfalls like defaults or poor credit behavior
- Offers easy-to-understand financial tools to plan better
As the bond market evolves, platforms like Stashfin can be instrumental in guiding retail investors toward smarter investment options, including corporate bonds.
Are Corporate Bonds Worth It in 2025?
As India moves toward more structured and diversified investing, corporate bonds have earned their spot in the modern portfolio. They provide a strong middle ground between the security of FDs and the high-risk-high-reward nature of equities.
While not completely risk-free, with proper due diligence, credit rating checks, and investment through reliable platforms, corporate bonds are a compelling option for long-term wealth building.
Take the Smarter Step with Stashfin
For those looking to balance returns with safety, corporate bonds are a smart investment in 2025. Pair that with Stashfin’s trusted digital financial solutions, and you have a future-ready plan.
Whether you’re managing loans, improving your credit profile, or seeking better investment avenues, Stashfin can support your journey every step of the way. Visit Stashfin to explore smarter financial products that match your evolving goals.
