Blog Ask AI

What is a bond? A plain guide for Indian investors

By the Parmbh team ·

Drafted with AI assistance, then checked and edited by the Parmbh team before publishing.

A bond is a loan you make by buying a security: a government or a company borrows from you and agrees to repay the face value when the bond matures. Most bonds also pay interest on set dates along the way. The interest and the repayment both depend on the issuer being able to pay, so neither is guaranteed. This post covers who issues bonds in India, the terms every bond carries, what SEBI requires before a listed NCD is issued, and what can go wrong.

Key points

  • A bond is a loan in the form of a security: the issuer borrows, agrees to repay the face value at maturity and, for most bonds, to pay interest on set dates along the way.
  • In India, bonds are issued by the central and state governments and by companies, banks, NBFCs and other bodies. Many corporate bonds are NCDs (non-convertible debentures).
  • Before a listed NCD is issued, SEBI's rules require exchange approval, a depository arrangement, a debenture trustee and at least one credit rating.
  • Interest and repayment depend on the issuer being able to pay. Bonds are not risk-free, prices can fall, and a rating is an opinion that can change.

Who issues bonds in India?

There are two broad groups of borrowers. One is government: the central government and the state governments. The other is everyone else, from banks and NBFCs to public sector undertakings and private companies.

The RBI's primer on the government securities market (dated 1 April 2020) describes a government security, or G-sec, as a tradeable instrument issued by the central or a state government that acknowledges the government's debt. Short-term ones are treasury bills, with an original maturity of less than one year. Longer ones are called dated securities or government bonds. State governments issue only dated securities, known as State Development Loans (SDLs).

Corporate bonds sit under a different rulebook. SEBI's Issue and Listing of Non-Convertible Securities Regulations, 2021 (the NCS Regulations, last amended on 21 January 2026) cover debt securities that issuers list on a stock exchange. Their definition of debt securities expressly leaves out bonds issued by the Government.

People often ask whether "bond" and "debenture" mean different things. In Indian rules the two overlap. The NCS Regulations define debt securities as non-convertible debt securities with a fixed maturity that create or acknowledge a debt, and say this includes debentures, bonds or any other such security, whether or not it carries a charge on the issuer's assets.

What do face value, coupon and maturity mean?

Every bond's terms answer the same few questions. Four of them come first:

  • Issuer: who is borrowing, and so who owes the payments.
  • Face value: the amount the bond represents. Interest is worked out on it, and it is usually what is due back at maturity.
  • Coupon rate: the interest rate set in the bond's terms, as a percentage of face value, with a schedule for when it is paid.
  • Maturity date: the day the issuer is due to repay the face value.

The coupon is not the yield. The coupon is fixed in the terms. The yield is worked out from the price the bond is quoted at, so it moves when the price moves, and it is not guaranteed either. Our explainer on coupon and yield shows where each number sits on a bond page.

Hypothetical example, not a real bond and not a forecast. Take a bond with a face value of ₹10,000, a coupon of 8% p.a. paid once a year, and five years left to maturity. The bond pays ₹800 a year in interest, before tax, if the issuer pays. On the maturity date the issuer is due to repay the ₹10,000.

The interest a bond pays may be taxed, and tax may be deducted at source before it reaches you.

Tax rules change, so check with a tax adviser.

Is a bond the same as an NCD?

An NCD, or non-convertible debenture, is a bond issued by a company that cannot be converted into its shares. Most bonds on Parmbh are NCDs.

NCDs can be secured, meaning backed by specific assets that bondholders can claim if the issuer defaults, or unsecured, with no such backing. Security can improve the chances of recovery. It does not remove the risk of loss.

Say you see two NCDs from the same issuer, one marked secured and one not. The difference is about what bondholders can claim if things go wrong; the issuer owes the payments on both. Our section on secured, unsecured and seniority goes into this.

What has to be in place before a listed NCD is issued?

Chapter II of the NCS Regulations sets general conditions for listed issues, whether the bonds are sold to the public or placed privately. Four of them show up in almost any NCD's documents:

  1. The issuer applies to one or more stock exchanges for in-principle approval to list the securities (regulation 6).
  2. It makes an arrangement with a depository so the securities can be held in dematerialised form (regulation 7).
  3. It appoints a debenture trustee for an issue of debt securities (regulation 8). The regulations define a debenture trustee as one registered with SEBI.
  4. It obtains a credit rating from at least one credit rating agency registered with SEBI and discloses it in the offer document. If ratings were obtained from more than one agency, all of them must be disclosed, including any the issuer did not accept (regulation 10).

A common question is whether a bond with a trustee and a rating will surely be repaid. No. A rating is the agency's opinion of the issuer's ability to pay on time, and ratings can change. Neither the trustee nor the rating is a promise of repayment. Our page on how credit ratings work explains the scale.

Where are bonds bought and held?

Bonds are first sold when they are issued, either in a public issue or through a private placement. Once listed, they can be bought and sold on the stock exchanges. Listing does not mean there will always be a buyer. Selling before maturity can take time, or mean accepting a lower price.

For a listed NCD, regulation 7 requires the issuer to arrange with a depository so the bonds can be held in demat form, much like shares.

Government securities have their own route as well. Under the RBI's Retail Direct Scheme (FAQ dated 12 November 2021), individuals can open a Retail Direct Gilt (RDG) account with the RBI. With it, they can buy government securities in primary auctions and buy or sell them in the secondary market. The FAQ lists treasury bills, dated government securities and SDLs among the securities available there. Like other bonds, government securities can change in price after they are issued, as the next section explains.

Do bond prices change after a bond is issued?

Yes. The coupon is fixed in the terms, but the price at which a bond trades can move. Interest rates are one big reason. When market rates rise, older bonds with lower coupons look less attractive, so their prices tend to fall; when rates fall, the opposite tends to happen. A rating change, or a shift in how the market sees the issuer, can move the price too.

Hypothetical example, not a real bond and not a forecast. A bond with a face value of ₹10,000 pays a coupon of 8% p.a. Later, bonds of similar risk are issued with a coupon of 9% p.a. Since a buyer can find the higher coupon elsewhere, the older bond tends to trade below ₹10,000. Its interest is still worked out on the ₹10,000 face value.

The price matters most to someone who sells before maturity. A bond held to maturity is due to be repaid at face value whatever its price did in between, and that still depends on the issuer paying. Our explainer on coupon and yield shows how a bond's yield moves when its price does.

What can go wrong with a bond?

Bonds carry risks, and you can lose money. The main ones are:

  • Credit risk: the issuer may delay or miss interest or repayment.
  • Liquidity risk: there may be no buyer when you want to sell before maturity.
  • Interest-rate risk: the price can fall when market interest rates rise.
  • Reinvestment risk: interest received may have to be reinvested at lower rates.

A frequent question goes like this: if the issuer is a large, well-known company, can anything really go wrong? Yes. Size and a familiar name do not remove credit risk. The rating and the issuer's own documents are where that risk is described, and a rating can change over a bond's life.

When reading a bond's details, it helps to look at who the issuer is, its rating and whether the bond is secured before looking at the yield. A higher yield usually means the market sees more risk. The full list is in our section on risks to check.

Where can I read more on Parmbh?

Our Learn page starts with the same question and goes on to ratings, security and maturity. If you want to see how bonds are described in practice, the bond list shows each bond's terms, and you can compare up to 3 bonds side by side or ask Parmbh AI what a term means.

We explain bonds; we don't tell anyone which one to buy.

Sources

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.

Spotted an error in this post? Email support@parmbh.com with the post title and what looks wrong.