Bond IPO Explained: Risks, Taxation And How To Invest
Companies do not always raise money by selling shares. They can also borrow directly from investors by issuing bonds or non-convertible debentures through a public issue.
This process is commonly called a bond IPO. The formal term is a public issue of debt securities or a Debt Public Issue. Although some investors search for “Bonds IPO” or “bond market IPO”, these terms broadly refer to bonds offered to the public through the primary market.
Bond IPOs may provide regular interest and return the principal at maturity. However, these payments depend on the issuer meeting its obligations. Investors must assess the issuer, issue structure, taxation and bond public issue risks before applying.
What Are Bond Public Issues?
A bond public issue is a process through which a company, financial institution or eligible entity raises debt capital from the public.
Investors lend money to the issuer by purchasing bonds. In return, the issuer agrees to pay interest according to the issue terms and repay the principal on maturity.
Unlike an equity IPO, a bond IPO does not provide ownership or voting rights. Bondholders are creditors of the issuer, while equity shareholders become part-owners of the company.
Many Bond IPOs in India involve secured, redeemable non-convertible debentures. An NCD cannot be converted into equity shares and must be redeemed according to its stated terms. SEBI regulates the issue and listing of these non-convertible securities.
Public debt issues form a relatively small but active part of India’s corporate bond market. The amount raised can vary sharply each year, depending on interest rates, issuer funding requirements and investor demand.
Financial year | Amount raised through public corporate debt issues | Annual change |
FY2022-23 | INR 9,220.64 crore | - |
FY2023-24 | INR 19,167.88 crore | 107.9% increase |
FY2024-25 | INR 8,149.04 crore | 57.5% decrease |
FY2025-26 | INR 11,342.77 crore | 39.2% increase |
Source: SEBI1
The amount more than doubled in FY2023-24 before falling in FY2024-25. It recovered partly in FY2025-26 but remained below the FY2023-24 level.
While Bond IPO activity changes with market conditions and issuer funding needs, these issues can still offer investors several practical benefits.
What Are The Benefits Of Bond Public Issues?
Bond IPOs are a favourable option for investing due to the following reasons:
1. Fixed Returns On Investment
Investing in a bond IPO can be a go-to method for investors looking for predictability and stability. The coupon rate is fixed for the entire bond term, allowing investors to receive predictable fixed income (monthly, quarterly, or half-yearly) and maintain a steady cash flow.
2. Low Ticket Size
The minimum amount of investment in a bond public issue is INR 1,000. This low entry point allows investors from different financial levels to invest in bonds. It also allows new investors to test the waters without significant risks.
3. Strictly Regulated
The Securities Exchange Board of India (SEBI) regulates the Indian securities market. It has established strict guidelines and regulations for the public issue of bonds to ensure transparency, boost trust, and protect investors' interests.
4. Exchange-Listed
Bond IPOs are exchange-listed (NSE/BSE) and are credited to the investor’s Demat account. This allows the investors to track their holdings and liquidate if needed.
5. Diversification Of Portfolio
Bond IPOs are instrumental in diversifying an investor’s portfolio. Incorporating them into an investment strategy can balance out the risks and returns of a portfolio due to their non-market-linked nature.
6. Low Risk
Bonds are considered a low-risk investment option than stocks or mutual funds due to lower volatility. Furthermore, bonds in India are credit-rated based on the issuer’s creditworthiness. Investment-grade bonds provide low-risk investment avenues.
Risks Associated With Bond IPOs
Bond IPOs offer defined contractual terms, but they are not risk-free. The level of risk, however, varies across issuers, ratings, tenures and issue structures.
1. Credit or Default Risk
The issuer may delay or fail to pay interest or repay the principal.
Investors should examine the issuer’s cash flows, profitability, leverage, repayment history and credit rating before applying.
2. Rating Downgrade Risk
A credit rating may be downgraded if the issuer’s financial position weakens.
A downgrade can increase perceived repayment risk and reduce the bond’s secondary-market price. Investors should review the rating rationale and track subsequent rating updates.
3. Interest-Rate Risk
Existing bond prices may fall when market interest rates rise. This matters mainly when an investor plans to sell before maturity.
Longer-tenure bonds are generally more sensitive to interest-rate movements. Investors should compare the tenure, coupon and expected holding period.
4. Liquidity Risk
Some listed bonds may have limited trading activity. Investors may struggle to find a buyer at the preferred price.
Checking recent traded volumes, available bids and transaction history can provide a clearer view of secondary-market liquidity.
5. Call Risk
A callable bond allows the issuer to redeem the security before its scheduled maturity date.
Issuers may exercise this option when market interest rates fall. Investors should check the call date, call price and conditions stated in the offer document.
6. Reinvestment Risk
Interest payments or early redemption proceeds may need to be reinvested at a lower rate.
This can reduce the investor’s overall return. Payment frequency, prevailing market rates and call provisions should be considered.
7. Security-Cover Risk
A secured bond is backed by specified assets, but the collateral may lose value.
Recovery can also take time if the issuer defaults. Investors should examine the type of security, charge ranking, security-cover ratio and debenture trustee terms.
8. Concentration Risk
Investing a large amount in one issuer or sector can increase the impact of a default or downgrade.
Diversifying across issuers, sectors, ratings and maturities can help reduce this exposure.
A secured bond does not guarantee repayment. Security may improve recovery prospects, but enforcement can take time and the realised value may be lower than expected.
How Are Bond IPOs Taxed?
Bond IPO taxation depends on how the return is earned. Coupon interest and gains from selling a bond are treated separately.
The following rules broadly apply to a resident individual holding bonds as investments. Different provisions may apply to NRIs, companies, market-linked debentures and investors treating securities as business assets.
Type of income | General tax treatment |
Coupon interest | Added to taxable income and taxed at the applicable slab rate |
TDS on interest on securities | Generally 10% when the applicable annual threshold is crossed |
Listed bond held for 12 months or less | Short-term capital gain taxed at the applicable slab rate |
Listed bond held for more than 12 months | Long-term capital gain taxed at 12.5% without indexation |
Unlisted bond or debenture transferred, redeemed or matured on or after 23 July 2024 | Treated as short-term capital gain irrespective of the holding period |
Source: Income Tax India2
Listed bonds and debentures qualify as long-term capital assets when held for more than 12 months. Long-term gains from transfers made on or after 23 July 2024 are generally taxed at 12.5% without indexation.
Unlisted bonds and debentures transferred, redeemed or matured on or after 23 July 2024 are treated as short-term capital assets under the special provision.
For resident investors, TDS on interest on securities generally applies at 10% when interest exceeds INR 10,000 during the financial year. TDS is only tax deducted in advance. The investor’s final liability depends on the applicable income-tax rate.
Suppose an investor places INR 2 lakh in an NCD paying a 9% annual coupon.
The annual interest would be INR 18,000. This amount would be added to the investor’s taxable income and taxed at the relevant slab rate.
TDS may be deducted where applicable. The investor can claim the TDS credit while filing the income-tax return.
Now assume the investor buys a listed bond for INR 95,000 and sells it after 16 months for INR 1 lakh. The INR 5,000 gain would generally qualify as a long-term capital gain and be taxed at 12.5%, excluding applicable surcharge and cess.
10 Terminologies To Know Before Investing in Bond IPOs
The offer document may contain several terms that determine your returns and risks. Understanding them makes it easier to compare issues.
Terminology | What it means |
Face value | The amount assigned to each bond. The issuer generally repays this amount at maturity unless the terms state otherwise. |
Issue price | The price at which investors can apply during the public issue. It may be equal to the face value. |
Coupon rate | The annual interest rate calculated on the bond’s face value. |
Payment frequency | How often the interest is paid, such as monthly, quarterly, half-yearly or annually. |
Tenure and maturity date | The tenure is the period for which the bond remains outstanding. The maturity date is when repayment becomes due. |
Yield to maturity | The estimated annualised return when a bond is held until maturity, assuming scheduled payments are received and reinvestment assumptions are met. |
Credit rating | A rating agency’s opinion on the likelihood of timely interest and principal payments. A bond IPO rating is not a recommendation or repayment guarantee. |
Secured and unsecured | A secured bond is backed by specified assets or security. An unsecured bond relies mainly on the issuer’s repayment capacity. |
Call and put options | A call option may allow the issuer to redeem early. A put option may allow investors to seek early repayment on specified dates. |
Record date | The cut-off date used to identify investors eligible to receive interest or redemption payments. |
Bond IPO vs Equity IPO vs NCD
A bond IPO and an equity IPO both raise funds from the public. However, they create different relationships between the company and the investor.
An NCD is a debt instrument. It can be issued through a public issue or a private placement. Therefore, the NCD vs Bond IPO comparison is not entirely between two separate products.
Parameter | Bond IPO | Equity IPO | NCD |
Meaning | Public issue of bonds or other eligible debt securities | Public issue of company shares | A non-convertible debt instrument that may be issued publicly or privately |
Investor’s position | Creditor or lender | Shareholder and part-owner | Creditor or lender |
Ownership rights | No ownership or voting rights | Ownership and voting rights may apply | No ownership or voting rights |
Return source | Coupon, redemption amount and possible capital gain | Dividend and share-price appreciation | Coupon, redemption amount and possible capital gain |
Maturity | Usually has a defined maturity | No maturity date | Has a defined maturity |
Return certainty | Payments follow issue terms but depend on issuer repayment | Returns are not predetermined | Payments follow NCD terms but depend on issuer repayment |
Main risks | Credit, interest-rate, liquidity and call risks | Business, market and valuation risks | Credit, interest-rate, liquidity, security and call risks |
Repayment priority | Generally ranks before equity, subject to issue terms | Residual claim after creditors | Generally ranks before equity, subject to issue terms |
Liquidity | Depends on exchange trading activity | Usually higher for actively traded shares, but varies | Depends on whether it is listed and actively traded |
Taxation | Interest at slab rate; capital gains based on listing and holding period | Dividends taxed at applicable rates; equity STCG and LTCG rules apply | Generally follows bond taxation based on listing, structure and holding period |
For listed equity transferred under the applicable securities transaction tax conditions, short-term gains are taxed at 20%. Long-term gains exceeding the annual INR 1.25 lakh threshold are taxed at 12.5%. These equity-specific rates do not apply to ordinary listed corporate bonds.
Who Can Invest In Bond IPOs?
Eligibility and investor categories depend on the terms stated in the prospectus of each public issue. Applicants are commonly grouped into the following:
1. Institutional Investors
This category may include mutual funds, insurance companies, banks, provident funds, pension funds and other eligible financial institutions.
Each institution must invest according to the laws and regulations applicable to it.
2. Non-Institutional Investors
This category may include companies, bodies corporate, trusts, societies, partnership firms, limited liability partnerships and associations of persons.
The entities included in this category can differ between issues.
3. High-Net-Worth Individual Investors
This category generally includes resident individuals and Hindu Undivided Families applying through the Karta for an amount above the limit specified in the prospectus.
For public-issue classification, the HNI category is based on the application amount rather than the investor’s total income or net worth.
4. Retail Individual Investors
This category generally includes resident individuals and Hindu Undivided Families applying through the Karta for an amount up to the retail limit specified in the prospectus.
The threshold separating retail and HNI applicants is not uniform across all bond public issues. Investors should check the relevant prospectus for the applicable investment limit, category allocation, NRI eligibility and application requirements.
How Can You Apply For Bond Public Issue?
The process of how to invest in bond IPO issues is similar to applying for other public securities. However, the investor must review the bond terms carefully.
Step 1: Find a Live Public Issue
Check a regulated investment platform, the issuer’s website or the relevant stock exchange.
An upcoming bond IPO or bond IPO list can change quickly. Investors searching for upcoming NCD bonds should verify the opening date, closing date and offer document from current sources.
Step 2: Review the Offer Documents
Read the shelf prospectus, tranche prospectus and application instructions.
Check the following:
- Issuer’s business and financial position
- Purpose for which the funds will be used
- Credit rating and rating rationale
- Coupon and interest frequency
- Tenure and maturity date
- Secured or unsecured status
- Security cover and charge ranking
- Call or put options
- Minimum application
- Risk factors
- Listing exchange
Do not select an issue based only on its coupon.
Step 3: Choose the Series
A public issue may provide several series. One may pay monthly interest, while another may pay annually or provide a cumulative redemption amount.
Choose according to your income requirement and holding period. Compare the effective yield rather than looking only at the coupon.
Step 4: Select the Investor Category
Choose institutional, non-institutional, HNI or retail, as applicable.
An incorrect category, PAN, demat number or bank detail may lead to rejection.
Step 5: Enter the Investment Amount
Check the face value, minimum number of NCDs and permitted multiples.
The minimum application is issue-specific. It should not be assumed from another bond public issue.
Step 6: Apply Through ASBA or UPI
ASBA stands for Application Supported by Blocked Amount. The application amount remains blocked in the bank account and is debited only for the allotted securities.
Current public-issue documents allow eligible retail and HNI applicants to use the UPI mechanism within prescribed limits. Retail applications generally extend up to INR 2 lakh, while eligible HNI applicants may use UPI for application amounts up to INR 5 lakh, subject to the prospectus and application channel.
Applications exceeding the permitted UPI limit generally use the ASBA process through a self-certified syndicate bank.
Step 7: Approve the Mandate
For a UPI application, approve the mandate within the prescribed time.
Using another person’s bank account or UPI ID may result in rejection.
Step 8: Wait for Allotment and Listing
The allotment method must be checked in the prospectus.
In one 2026 issue, allotment followed date priority until oversubscription. Applications received on the oversubscription date were handled proportionately within the respective category. Therefore, “first-come-first-served” should not be treated as an unconditional rule for every applicant.
After allotment, the NCDs are credited to the demat account. Unused blocked funds are released.
Investing in Bonds Through Secondary Markets
Investors who miss a public issue can purchase listed bonds from existing holders through the secondary market.
In the primary market, money goes to the issuer. In the secondary market, the buyer purchases the bond from another investor at the prevailing market price.
Key Benefits of Secondary-Market Investing
Wider Choice
The investor is not limited to one open issue. Listed bonds from different issuers, sectors, ratings and maturities may be available.
Ability to Invest After the Issue Closes
An investor who missed an NCD IPO may still purchase the security after listing, subject to availability.
Market-Based Yield
A bond may trade above or below its face value. This creates an opportunity to select bonds based on their current yield and yield to maturity.
A high coupon does not always mean a high current return. The purchase price matters.
Exit Before Maturity
Listed bonds can be offered for sale before maturity. This provides flexibility when an investor’s cash requirements or portfolio priorities change.
However, the sale price may be below the purchase price.
How to Get Started
- Open an active demat and trading account with an eligible intermediary.
- Search for the bond using the issuer name or International Securities Identification Number.
- Check the current price, accrued interest, yield, maturity and credit rating.
- Review recent trading volumes and available buy and sell quotations.
- Place an order after confirming the quantity and total amount.
- Track interest record dates and maturity payments after settlement.
NSE provides market infrastructure for listed corporate bond transactions and publishes corporate bond trading information.
Primary Market vs Secondary Market
Parameter | Primary market | Secondary market |
Seller | Issuer | Existing bondholder |
Price | Stated issue price | Prevailing market price |
Availability | Only during the issue period | Subject to sellers and market activity |
Yield | Based on issue terms | Depends on coupon, purchase price and remaining tenure |
Allotment | May be full, partial or unsuccessful | Depends on order execution |
Liquidity | Not applicable before listing | Depends on trading activity and buyers |
Documents to review | Prospectus and application terms | Issue documents, market price, volume and yield |
Liquidity in Bond Investments With Grip Invest
Grip Invest’s Sell Bonds Anytime facility allows eligible investors to seek an exit before maturity after completing the applicable holding period.
Grip’s current FAQ states that the facility becomes available after two months of holding. Availability, price and execution remain subject to the platform process and potential buyers.
An early exit does not guarantee recovery of the original investment amount. The sale value can change with market interest rates, the issuer’s credit profile and buyer demand.
Conclusion
Investing in bond IPOs is a sound step towards low-risk, high-yield investing. It offers benefits such as stability, diversification, and predictable returns. Bond investments are easy to start, track, and manage. However, you must thoroughly check the issuer’s background before investing in a bond IPO.
Explore stable corporate bond investment strategies on Grip Invest to achieve your financial goals. The platform offers curated, rated, SEBI-compliant, and listed opportunities.
Frequently Asked Questions On Bond IPOs
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Author: Grip Invest Editorial Team The Grip Invest Editorial Team is a group of Chartered Accountants, MBA (Finance) graduates, and Qualified Research Analysts dedicated to helping you invest smarter. We dive deep into India's fixed income landscape to deliver content that is accurate, up-to-date, and easy to understand. Whether you're exploring bonds, fixed deposits, or other fixed income opportunities, our guides cut through the noise and give you the clarity to make better financial decisions. |
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