Bonds and Fixed Income

What a bond is

A bond is a loan you give to a government, a public-sector body or a company. In return, the issuer pays you interest (the "coupon") at set intervals and repays your money on a fixed date (the "maturity"). If you own a share, you own part of a company. If you own a bond, you are its lender.

Bonds usually move less than shares, which is why families use them for stability, income and goals with a fixed date. But "steadier" is not "risk-free". A bond is only as reliable as the issuer behind it.

The main types

Who issues the bond decides most of its risk. Government bonds carry very low credit risk; company bonds pay more because the risk is higher.

Type and issuer	Worth knowing
Government securities Government of India and state governments	Backed by the government, so credit risk is very low. Prices still move when interest rates change. Includes Treasury Bills (under one year) and State Development Loans.
Corporate bonds and NCDs Companies, banks and financial institutions	Pay more than government bonds because the risk is higher. Always check the credit rating, and remember a rating can be cut.
Tax-free bonds Public-sector issuers	Issued with tax-free interest. No new issues have come for some years, so they are now bought and sold on stock exchanges at market prices. Confirm the tax treatment for your case with your chartered accountant.
54EC capital-gains bonds Specified public-sector issuers	Can help save tax on long-term gains from selling land or a building. They carry a lock-in; see below.
RBI Floating Rate Savings Bonds Government of India, through RBI	Interest is set at the National Savings Certificate rate plus 0.35% and reset every six months. Seven-year term, not tradable, and not open to NRIs. Early redemption is allowed only for senior citizens, after a minimum holding period.

An elderly couple sharing morning tea on a balcony full of plants — Illustrative image

54EC bonds, in a little more detail

If you sell land or a building at a long-term gain, investing the gain in specified bonds within six months of the sale can save tax on it.

They are called 54EC bonds after Section 54EC of the old Income-tax Act, 1961. From Tax Year 2026-27, the same benefit is in Section 85 of the Income-tax Act, 2025. The conditions are strict, so please confirm your case with your chartered accountant before you sell.

Tax-specific instrumentsMeant for this one purpose. The bonds run for five years and cannot be transferred. Selling them, or taking a loan against them, within five years can take the tax benefit away.

Upper limitThe investment that qualifies for this benefit is capped at ₹50 lakh, across the tax year of the sale and the next tax year.

ComplaintsHandled by the issuer, not by SEBI.

The risks, plainly

A high coupon is often a sign of higher risk, not a bargain. We will never describe a corporate bond as "safe as a fixed deposit".

Credit riskThe issuer may delay or fail to pay interest or principal. Lower ratings mean higher risk.

Interest-rate riskWhen rates rise, the market price of existing bonds falls. It matters if you sell before maturity.

Liquidity riskMany bonds trade rarely. You may not find a buyer quickly, or at a fair price.

How bonds are bought, and how Finpotters helps

Bonds are not sold on this website. Under SEBI rules, a website or app that sells bonds online must be run by a SEBI-registered stock broker that is also registered with a stock exchange as an Online Bond Platform Provider. Listed bonds can also be bought on the stock exchange through your demat account. Government securities can also be bought directly through the RBI's Retail Direct portal, and RBI Floating Rate Savings Bonds through designated bank branches.

Match bonds to a needIncome, a known future expense, capital-gains tax, or balancing an equity-heavy portfolio.
Explain the optionsIssuer, rating, maturity, liquidity and tax points, compared side by side in plain words.
Buy through a registered platformWe guide you to buy through a SEBI-registered platform or broker, in your own demat account.
Keep trackInterest dates, maturities and what to do with the money when a bond matures.

Bonds or debt mutual funds?

Both hold similar kinds of instruments. With a bond, you know the coupon and the maturity date, and can hold it to the end. A debt fund spreads your money across many bonds and lets you withdraw any day, but its value moves daily. For debt funds (funds with more than 65% in debt and money-market instruments) bought on or after 1 April 2023, gains are taxed at your slab rate regardless of how long you hold them (Section 76 of the Income-tax Act, 2025, for Tax Year 2026-27). How bond interest and gains are taxed depends on the bond, so check with your chartered accountant. See mutual funds for more.

Common questions

Are bonds safer than shares?

Usually less volatile, but not risk-free. Government securities carry very low credit risk. Corporate bonds depend on the company's ability to pay, which is why the credit rating matters.

What does a credit rating like AAA mean?

It is a rating agency's view of how likely the issuer is to pay on time. AAA is the highest. A rating is an opinion, not a guarantee, and it can be changed.

Can I sell a bond before it matures?

Listed bonds can be sold on the stock exchange, but the price depends on interest rates and demand, and some bonds trade rarely. 54EC bonds and RBI Floating Rate Savings Bonds cannot be sold or transferred. RBI Floating Rate Savings Bonds can be redeemed early only by senior citizens, after a minimum holding period.

How is bond interest taxed?

It depends on the type of bond, how long you hold it and whether you sell before maturity. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 (Tax Year 2026-27), and many section numbers changed. Please confirm the tax on both the interest and any gain with your chartered accountant before you invest.

Can NRIs buy Indian bonds?

NRIs can buy many listed bonds, subject to FEMA rules and the type of account used. RBI Floating Rate Savings Bonds are not open to NRIs. Speak to us for your country.

Please note: Bonds carry credit, interest-rate and liquidity risk. Returns are not guaranteed, and credit ratings are opinions, not assurances. Finpotters does not sell bonds on this website; most bonds are bought through registered Online Bond Platform Providers (which must be SEBI-registered stock brokers) or stock brokers, while government securities can also be bought through RBI Retail Direct and RBI Floating Rate Savings Bonds through designated bank branches. Tax information here is general; please confirm your case with a chartered accountant. Read the offer document or information memorandum before investing. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Bonds & Fixed Income