Two percentages on a bond page: what's the difference?
The coupon rate is the interest rate a bond was issued with, set as a percentage of its face value, while the yield is an annual figure worked out from the price the bond was quoted at, its coupon and the time left to maturity. The coupon sets the interest the bond pays, if the issuer pays; the yield changes whenever the price does and is not guaranteed. This post uses the Reserve Bank of India's definitions to show why the two drift apart, and where an NCD's issue document sets out its coupon.
Key points
- The coupon rate is the interest rate set in a bond's terms, as a percentage of its face value. The issuer pays it only if it is able to.
- The yield is worked out from the price the bond was quoted at, its coupon and the time left to maturity. It changes as the price changes and is not guaranteed.
- When a bond is priced below its face value, its yield to maturity is above its coupon rate. When it is priced above face value, the yield is below the coupon.
- A higher yield usually means the market sees more risk, such as a lower credit rating. It does not raise the interest the bond's terms set.
What is a bond's coupon rate?
The coupon rate is the interest rate written into a bond's terms, worked out on its face value. The issuer pays it only if it is able to.
The Reserve Bank of India's primer on government securities describes dated government securities as carrying a fixed or floating coupon paid on the face value. It calls the coupon payment as a percentage of face value the "coupon yield". So a coupon rate tells you what the bond pays on its face value, not on the price paid for it.
That is why the coupon doesn't change with the price. Picture two people holding units of the same NCD. One bought at the issue, the other bought later on the exchange at a different price. Each unit carries the same coupon, because it is paid on the same face value.
Does a coupon ever change? Only as the bond's terms allow. A floating-rate bond resets its coupon at set intervals, by a method stated in its terms. Some NCDs, fixed-rate ones included, also have a coupon that steps up or down after an event, such as a rating downgrade or the end of a set period. SEBI's rules say the issue document should disclose the new rate and the events that lead to the change.
What does a bond's yield measure?
A yield relates what a bond pays to what it costs. The RBI primer describes three measures:
- Coupon yield: the coupon payment as a percentage of face value. This is the coupon rate by another name.
- Current yield: the coupon payment as a percentage of the price paid. The primer notes that it looks only at the coupon and ignores other sources of return, such as a gain or loss when the bond matures.
- Yield to maturity (YTM): the rate at which the present value of all the bond's remaining payments equals its market price. The primer calls it the bond's internal rate of return if it is held until maturity.
YTM is worked out from the payments set out in the bond's terms. It assumes each one is made in full and on time, and that the bond is held until it matures. If the issuer delays or misses a payment, or the bond is sold early at a different price, the result is different.
A reader looking at a bond page often asks which of these the page shows. Our explainer on coupon and yield sets out how Parmbh labels the yield figures on its pages and what each label means.
Why aren't the coupon and the yield the same?
Because a bond can trade at a price other than its face value. The RBI primer states the link plainly: when market interest rates rise, bond prices fall, and when rates fall, prices rise. Yield moves the opposite way to price.
From that, the primer gives three cases:
| Bond's price | How the yield to maturity compares with the coupon |
|---|---|
| Below face value (at a discount) | Higher than the coupon |
| Above face value (at a premium) | Lower than the coupon |
| Equal to face value (at par) | The same as the coupon |
Hypothetical example, not a real bond and not a forecast. Take a bond with a face value of ₹1,000 and a coupon of 9% p.a., paid once a year. The bond pays ₹90 a year in interest, before tax, if the issuer pays, whatever price it trades at. If it is quoted at ₹900, that ₹90 is 10% p.a. of the price, which is its current yield, and it is not guaranteed. Its yield to maturity is higher again, because it also counts the ₹100 gap between the price and the ₹1,000 due at maturity. If the same bond is quoted at ₹1,100, both its current yield and its yield to maturity are below 9% p.a., and neither is guaranteed.
A common follow-up question is why a bond would be quoted below its face value at all. One reason is that market rates have risen since it was issued, so its price has adjusted. Another is that the market has come to see more risk that the issuer won't pay in full or on time.
Interest on a bond may be taxed, and tax may be deducted at source.
Tax rules change, so check with a tax adviser.
Which number sets the interest a bond pays?
The coupon. A bond's interest payments are set by its coupon and face value, whatever the yield shows, and they are made only if the issuer can pay. The yield describes the price on the day it was quoted.
If a bond pays interest more than once a year, each payment is a share of the annual coupon. The RBI primer's example of a government security with half-yearly payments shows the annual coupon split into two equal halves.
People buying a bond between two interest dates sometimes notice they paid more than the quoted price. The primer explains why. The seller has held the bond since the last coupon date, so the buyer also pays the seller the interest built up over that period, called accrued interest. The quoted price without it is the "clean price"; with it, the "dirty price".
How that interest is counted depends on the day count convention. SEBI's NCS Regulations (amended up to 21 January 2026) define it as the system used to work out the number of days and the accrued interest between two payment dates. Regulation 14 sets it at Actual/Actual for interest on non-convertible securities.
What does a higher yield tell you?
A higher yield usually means the market sees more risk. Two bonds with the same coupon can have different yields, and a higher yield often comes with other risks, such as a lower credit rating.
Say two NCDs have the same coupon and the same maturity date, but one has a lower rating. If buyers will only pay a lower price for the lower-rated one, its yield is higher. The issuer pays no more interest on it; the gap reflects how the market prices the risk of being paid late or not at all. Our section on credit ratings explains what the rating scale means.
A yield also leaves things out. It doesn't show whether there will be a buyer if you want to sell before maturity. And if market rates rise after you buy, the bond's price can fall, so selling early may mean getting back less than you paid. The full list is in our section on risks to check.
When reading a bond's details, it helps to look at the issuer, the rating, the security and the maturity before looking at the yield.
Where does an NCD show its coupon terms?
In its issue document. Schedule I of SEBI's NCS Regulations lists a "Summary of terms" that the issue document must include, and several of its lines are about the coupon:
- the coupon rate, and any step-up or step-down in it;
- how often the coupon is paid, and the payment dates;
- the coupon type (fixed, floating or another structure) and, for a floating coupon, how it resets;
- the day count basis;
- the issue price, and any discount at issue with the effective yield that results from it;
- any premium or discount at redemption, again with its effective yield.
So the coupon and the yield can differ even at issue: an NCD issued at a discount, or repaid at a premium, has an effective yield that is not its coupon.
Where can I read more on Parmbh?
Our Learn page on coupon and yield has the short version of this post, and our checklist for reading a bond page covers what to look at before the yield. The compare page shows the coupon rate, yield, rating and maturity of up to three bonds in one table. You can ask Parmbh AI what any term on a bond page means.
We explain bonds; we don't tell anyone which one to buy.
Sources
- Reserve Bank of India, Government Securities Market in India – A Primer (FAQ), questions 22 to 24, 1 Apr 2020 (checked 25 Oct 2026)
- Securities and Exchange Board of India, Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations 2021 [Last Amended as on January 21, 2026], 21 Jan 2026 (checked 25 Oct 2026)
This post is for learning only. It is not investment advice or a recommendation to buy, sell or hold any bond, and it does not take your circumstances into account. Bonds carry risks, including the risk that the issuer does not pay on time or at all. Yields are not guaranteed, and figures are as of the dates shown. Parmbh earns a commission from Aspero or our partners when you invest through us. It is included in the price or terms you get from Aspero or the partner. We never hold your money. Before you invest, read the issuer’s documents and speak to a SEBI-registered adviser.
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