Tokenised Bonds In India: How They Work, Benefits And Risks
Tokenised bonds in India are corporate bonds issued and recorded as digital tokens on a regulated ledger. The token changes how ownership and settlement are handled, and not the bond's promise to pay. A bond still has an issuer, coupon, maturity, covenants and the possibility of default.
Demat 2.0 is one of the practical examples of this approach to tokenisation in India. SEBI launched this pilot in September 2026, using the RBI's digital rupee for payment. However, the initiative remains a pilot, and its features and availability depend on the stage of implementation.
What Are Tokenised Bonds in India?
Under SEBI's Demat 2.0 pilot, corporate bonds are being issued as an original digital token on a private Distributed Ledger or Blockchain operated through a market infrastructure institution. The depository continues to maintain the official records of beneficial ownership. As per SEBI, the tokenised bonds will hold the ISIN, the issuer's ratings, and issuer's obligations and rights of the investor.
Changing how corporate bonds are recorded does not turn them into cryptocurrency or a new type of asset. The pilot applies to corporate bonds within the existing securities framework. In fact, this pilot is designed only for corporate bonds in accordance with existing securities regulations. Tokenisation therefore changes the infrastructure used to record and settle the security rather than creating a fundamentally different investment product.
Additionally, tokenised corporate bonds will have the same credit risk exposure as before. The pilot involves linking the securities side of the transaction to the payments made in the Central Bank digital currency e? of the Reserve Bank of India. The first launch is expected to involve institutions as users, while the second stage is intended to introduce retail participation.
So an investor reading about a successful pilot issue should not assume tokenised bonds are already available on every retail bond platform. SEBI's framework is the authoritative guide to the pilot's current features.
How Does Bond Tokenisation Work?
The tokenisation of bonds changes the ownership record and settlement process. It does not rewrite the issuer's repayment obligation. The process follows the bond's ordinary commercial terms:
- Set the terms: The issuer specifies the borrowing amount, coupon, repayment date, security and covenants.
- Issue and allot: It obtains an ISIN and uses the stock exchanges' existing electronic bidding platform. The depository credits the digital bond to eligible investors' Demat 2.0 holdings.
- Link payment: Investors connect those holdings, an extension of their existing demat account, with a CBDC wallet through their bank. They need neither a second demat account nor their own cryptographic private keys.
The payment leg is settled using digital rupees through the CBDC wallet. As soon as the qualified participants engage in transactions, the money transfer and securities transfer will be made at the same time. This is known as atomic settlement, where the two sides of the transaction are completed together rather than one occurring without the other.
Let's consider a hypothetical example saying there is a bond which costs ?1 lakh with a standard yearly interest of 8 percent related to it. The amount of ?8,000 payable annually will have to be paid even if the transaction is done through Demat 2.0. Note that this ignores taxes and other issues that might exist in real life.
India's First Tokenised Bond Issues
On the 10th of September 2026, SEBI stated that its Demat 2.0 experiment was performed successfully. The FAQ provided by the authority presents the given procedure but the data on each issuer in terms of its sum, annual coupon, maturity date, and investor eligibility should be checked in the offer documentation of the issuer. Reuters wrote that REC was going to launch tokenised corporate bonds.
The significance of these early transactions is therefore less about creating a new category of bond and more about testing how tokenised securities can operate within India's existing market infrastructure. The pilot brings together the securities infrastructure used for corporate bonds with digital-currency-based payment settlement.
Developments in tokenised bonds in India are currently focused on testing issuance, holdings and settlement within the country's securities framework. It is too early to infer that transaction costs have fallen across the market, that retail liquidity has improved, or that every future corporate bond will use this system. These would be potential longer-term benefits rather than established outcomes of the current pilot.
How are Tokenised Bonds Different From Traditional Bonds?
A token does not itself pay for a coupon. Credit risk still remains in case of non-repayment. The resale price of a fixed-rate bond may decrease if the market yield increases. Even if the settlement is done rapidly, liquidity cannot be created if there are not enough interested buyers.
The meaningful improvement SEBI is testing concerns transaction handling and settlement exposure. PwC's broader tokenisation overview describes possible efficiency gains, such as streamlined processes and potentially faster settlement, But those are possibilities and not established results for this Indian pilot.
The potential benefits of tokenisation include faster settlement, streamlined transaction processes and reduced settlement exposure. Yet again, these benefits are still being tested under the pilot and should not be treated as established outcomes for India's wider corporate bond market.
Feature | Conventional demat bond | Demat 2.0 pilot bond |
| Ownership record | Existing depository architecture | Native token on permissioned ledger; depository remains record keeper |
| Bond terms | Set by offer document | Same legal rights and offer terms; relevant terms encoded for servicing |
| Payment and settlement | Existing market arrangements | Linked bond and CBDC payment tested for atomic settlement |
| Trading venue | Existing exchange/RFQ or OTC routes as applicable | Existing RFQ and OTC channels are to connect with the ledger; no separate token exchange |
| Investor access | Depends on issue and platform | Stage I primarily institutional; retail access proposed for Stage II |
The key distinction is that tokenisation can change how a bond is recorded and settled without changing the fundamental risks attached to the underlying investment.
Can Retail Investors Buy Tokenised Bonds in India?
SEBI defines Stage I as the stage when the issuance of bonds is done to institutions as of 24 September 2026. Stage II is when the secondary market is created and retail access is introduced. Therefore, a common investor cannot assume that if a pilot is launched, they can partake in tokenised bonds immediately from a regular app. The eligibility depends on the issue of the token and the pilot stage.
The old demat is used. Demat 2.0 does not have a separate demat account or introduce additional KYC since the bond is tokenised. It is essential for the participant to link the CBDC wallet and give consent through the depository.
This means retail investors should distinguish between the existence of a tokenised bond pilot and actual retail availability. A specific issue may have its own eligibility requirements, and investors should check the relevant offer documentation before assuming that they can participate.
What Should Investors Know Before Investing?
For any tokenised bond investment, evaluate the bond first and technology second. Look for:
- Issuer and credit: Who owes the money? What are the issue's rating, rationale, security and covenants?
- Return and timing: What are the coupon, purchase price, YTM and maturity?
- Exit: Is there a lock-in or transfer restriction? Where can it trade, and is a buyer likely to be available?
- Access: Who is eligible now, what wallet linkage is required and how would an interim exit settle?
Investors should also check whether the bond has any specific infrastructure or wallet requirements, whether it can be traded through an existing bond platform or market mechanism, and what liquidity or exit options are actually available.
YTM makes an assumption regarding cash flows and a predetermined price. However, this does not mean that if a bond is sold before its maturity, a return will be achieved. Market prices can change before maturity, so an investor selling early may receive more or less than the purchase price. Make sure you understand the differences between yield and interest rate for better understanding.
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Disclaimer - Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading.
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