Bonds in India: The Complete Guide for Retail Investors

A bond is a loan you give, not a share you own. When you buy a bond — whether it is the Government of India's ten-year security or a three-year NBFC deposit-style note — you are lending money, the borrower pays you interest (the coupon) on a schedule, and returns your principal on a fixed maturity date. That predictability is why bonds anchor every serious portfolio, and why 2026 is an unusually interesting year to learn them: the benchmark 10-year government yield is about 7.3%, near its highest since 2022, after eleven straight weeks of rising yields.

This guide is the hub for our bonds and fixed-income cluster. It covers what a bond is, the whole market map from Treasury Bills to tax-free bonds, how retail investors actually buy each kind, how the tax office treats bond income after the 2024 rewrite, the risks that genuinely hurt people — including the AT1 write-down saga that finally reached the Supreme Court last month — and a bond vs FD vs debt fund comparison at the end.

What a bond actually is: coupon, price, yield, duration

Start with four words. Face value is the principal printed on the bond, usually ₹100 per unit for government securities (retail investors buy in multiples of ₹10,000 through RBI's Retail Direct). Coupon is the annual interest rate the issuer pays on that face value — on a 6.94% GS 2036 bond, the Government pays ₹6.94 a year per ₹100 face value, in two half-yearly instalments. Maturity is the date the principal comes back.

Price and yield are where beginners stumble. Bonds trade in the secondary market, and their price moves with interest rates. If new bonds pay 7.5%, nobody will pay full price for your older 6.94% coupon — so your bond's price falls until its yield to a new buyer matches the market. The reverse happens when rates fall. The rule to memorise: bond prices move opposite to interest rates.

Yield to maturity (YTM) is the return you actually earn if you buy at today's price and hold to maturity, counting the coupon plus the gain or loss between price and face value. The current yield — coupon divided by price — is a cruder number that ignores that capital gain or loss. Always compare YTMs, never coupons.

Duration measures how sensitive a bond's price is to rate changes, roughly the weighted average time your money is exposed. A rule of thumb: for every 1 percentage point move in yields, a bond's price moves about 1% per year of duration — a 10-year bond with duration near 7 falls roughly 7% if yields rise 1 point. Long duration is why gilt funds can post negative years even though the government never missed a payment.

The market map: every kind of bond you can own

India's bond market is large and mostly institutional, but every piece of it is now reachable by an individual. From safest to riskiest:

Source for the instrument structure: RBI's Government Securities Market primer and the RBI Retail Direct scheme pages, accessed 2 November 2026.

A few notes on the unusual ones. Treasury Bills pay no coupon at all — you buy at, say, ₹97.60 and the government pays you ₹100 at maturity; the discount is the entire return. State Development Loans are state-government equivalents of G-Secs; the RBI treats them nearly identically, and they typically yield a little more than central government paper.

Tax-free bonds — the NHAI, PFC, REC, IRFC and HUDCO issues of the 2013-16 window — are now a closed club: interest is fully exempt from income tax, but there has been no fresh retail issue for years, so you buy them second-hand on the exchange, where their tax-free coupons push prices well above face value. The exemption covers interest only; capital gains on sale are taxable like any bond (Source: Section 10(15)(iv)(h), Income-tax Act, 1961; cross-checked against Dezerv and BondScanner explainers, 2 November 2026).

AT1 (Additional Tier-1) bonds deserve special suspicion. They are perpetual — no maturity date — subordinated, and their terms let the issuer skip coupons or write the principal down if its capital ratios deteriorate. In March 2020, ₹8,415 crore of Yes Bank AT1 bonds held largely by retail investors was written down to zero overnight during the SBI-led rescue; on October 16, 2026, the Supreme Court struck down that particular write-down as beyond the administrator's powers (Source: Moneylife and India Today coverage of the October 16, 2026 ruling). Note what the ruling did not do: it did not dispute that AT1 bonds can be wiped out in a resolution. The global precedent is Credit Suisse, where CHF 17 billion of AT1 paper went to zero in March 2023. AT1 is an institutional product wearing a retail price tag; treat it accordingly.

Sovereign Gold Bonds are government securities denominated in grams of gold — technically bonds, but really a gold substitute, and we cover them fully in our Sovereign Gold Bond guide rather than repeating it here. And if you want corporate-bond exposure without picking individual issuers, the Bharat Bond ETF holds a ladder of AAA-rated PSU and top-rated corporate debt; our Bharat Bond post walks its index, taxation and liquidity.

What the 10-year G-Sec yields right now

The benchmark ten-year security is the 6.94% GS 2036. On November 2, 2026, its yield was about 7.33%, easing seven basis points from the previous session after climbing eleven consecutive weeks to roughly 7.50% in late October — the highest since 2022 (Source: TradingEconomics interbank quote, November 2, 2026; Reuters, October 29, 2026 — cross-checked against Ventura Securities and Macrotrends; CCIL's official tenor-wise yield page was not fetchable that day).

Two practical readings. First, for a saver, ~7.3% risk-free for ten years is a genuinely decent real return by recent Indian history — it was 6.6% a year ago. Second, the direction matters: rising yields mean new buyers get better coupons, but anyone selling older G-Secs or gilt funds before maturity has been absorbing price losses through 2026. If you buy and hold to maturity, neither matters — you lock the yield and the coupons arrive on schedule.

How retail investors actually buy bonds

There are three doors, and the differences are bigger than most articles admit.

Door 1: RBI Retail Direct — the government's own free portal at rbiretaildirect.org.in. Open an RDG account with PAN, a savings account and video KYC, and you can bid in primary auctions of T-Bills, dated G-Secs and SDLs (non-competitive bids from ₹10,000, allotted at the auction's weighted-average price), buy SGBs during subscription windows, and trade in the secondary market. The account and bidding are free; you pay only payment-gateway charges. Our step-by-step RBI Retail Direct walkthrough covers eligibility, auction mechanics and what happens when you sell early.

Door 2: Your stock broker / demat account — G-Secs and a subset of listed corporate bonds trade on the NSE and BSE debt segments, and many full-service brokers now offer a bond-buying interface. Corporate bonds here come in exchange lots; since SEBI cut the face value of listed debt from ₹1 lakh to ₹10,000 in 2024 (earlier ₹10 lakh), single-bond minimums have shrunk dramatically (Source: SEBI board decision reported April 30-May 1, 2024 by The Times of India and Business Standard; ICICI Direct explainer, July 2024).

Door 3: SEBI-regulated online bond platforms (OBPPs) — GoldenPi, Aspero, IndiaBonds, Wint Wealth, Jiraaf and roughly forty others. Since November 2022, SEBI requires every online bond platform to be a registered stock broker in the debt segment, to offer only listed debt securities (or public-issue paper), to route every order through the exchange's RFQ mechanism with settlement through clearing corporations, and to disclose each bond's rating rationale, YTM, seniority and debenture trustee (Source: SEBI circular SEBI/HO/DDHS/DDHS-RACPOD1/P/CIR/2022/154, November 14, 2022). Our platform-by-platform review of the big six covers minimums, fees and what each actually sells.

What you cannot do is buy an unlisted, private-placement bond from a WhatsApp forward. If the paper is not listed and the seller is not a registered intermediary, you are outside every protection the framework above gives you.

How bonds are taxed (the 2024 regime)

Bond income has two parts, taxed differently.

Interest is ordinary income. Coupons on corporate bonds and NCDs are taxed at your income-tax slab rate, every year, whether you take them as cash or reinvest. There is no exemption and no indexation. TDS generally applies at 10% once interest from a single issuer crosses ₹10,000 a financial year (20% if your PAN is missing or inoperative); interest on Central and State government securities carries no TDS. Note that the TDS-on-securities provision moved from Section 193 of the 1961 Act to Section 393 of the Income-tax Act, 2025, effective April 1, 2026 — same rate, same ₹10,000 threshold, new section number (Source: TDSman and GoldenPi TDS guides, October-August 2026). Forms 15G/15H, used by investors below the taxable limit to request nil deduction, are being replaced by a single Form 121 from April 2026 (Source: GoldenPi TDS guide; cross-checked as on 2 November 2026 — verify the current form with your issuer).

Capital gains depend on listing. The Finance (No. 2) Act, 2024, effective for transfers on or after July 23, 2024, left two holding periods (Source: CBDT FAQs on the new capital-gains regime, July 24, 2024):

The ₹1.25 lakh annual LTCG exemption you may have read about applies only to Section 112A equity assets — listed shares and equity funds. Bonds get no such exemption; a ₹4 lakh gain on a listed bond held 18 months is 12.5% on the whole amount. And if you hold a bond to maturity and bought it at par, there is no capital gain at all — just fully-taxable coupons along the way.

Run your slab against these rates using the site's income tax calculator before choosing between instruments; in the 30% slab, the after-tax arithmetic between a 7.3% G-Sec and a 7.1% PPF is less obvious than it looks.

The four risks, ranked by how often they actually bite

1. Credit risk — the issuer cannot pay. This is near-zero for central government paper and climbs fast as you descend the rating ladder. The extra yield on a BBB-rated NBFC bond is the market's invoice for carrying default risk, and 2026 has supplied the case studies: microfinance-pool SDIs on bond platforms — including GripInvest's LoanX backed by Up Money loans — went into default, repaying investors roughly 35.5% including interest through September 2025 before payouts stalled (Source: Economic Times Wealth, February 2, 2026).
2. Duration risk — rates move against you. Every long bond and gilt fund carries it; 2026's eleven-week yield climb is a live demonstration. It vanishes if you hold to maturity, which is why matching the bond's maturity to your goal date is the single most effective risk decision you will make.
3. Liquidity risk — you need out before maturity and find no buyer, or only one at a punishing price. Corporate bonds, especially below AA, can go weeks without meaningful trading volume; even a small rating action can freeze a market. Platforms improve access and paperwork, not liquidity.
4. Structure risk — the bond's fine print is the trap. Seniority (secured vs subordinated), embedded call/put options, and write-down clauses determine what happens when things go wrong. Tier-2 and AT1 instruments sit at the bottom of the repayment ladder — see the Yes Bank story above. Read the security's offer document for its seniority before buying anything but AAA paper.

Bond vs FD vs debt fund

The three instruments compete for the same rupee, so here is the honest comparison:

Sources: 10-year yield as on 2 November 2026 (TradingEconomics/Reuters, cross-checked); SBI FD range 3.05-6.45% general public per Paisabazaar (October 2026) and BankBazaar (updated 2 November 2026); debt-fund taxation per Finance Act 2023 as summarised in our mutual fund taxation post; DICGC cover per DICGC Act as amended.

The honest conclusion: for money with a date attached and no appetite for surprises, a held-to-maturity G-Sec (via Retail Direct) or an FD does the job with the least moving parts. A debt fund makes sense when you want professional laddering across many bonds for a small fee — but since April 2023 its gains are taxed at your slab anyway, which erased the old indexation advantage. Individual corporate bonds are the slice worth researching one issuer at a time, not a substitute for the other two.

Who should own bonds, and how much

Bonds are not an asset class you graduate into; they are the ballast that lets you hold equities without panic. A common, defensible shape: your emergency fund in sweep-in FDs or liquid funds; goal money within five years in G-Secs, T-Bill ladders, quality corporate bonds or short-duration debt funds; equity for everything beyond that horizon. If your fixed-income pot is large, spread it across issuers and maturities — five ₹2 lakh bonds across five sectors beat one ₹10 lakh position in the highest yield on any screen.

What you should generally avoid: perpetual AT1 paper, unrated private placements, and any instrument whose yield needs a story to justify it. The yield on your screen is the market telling you the risk in plain numbers.

Where to go next in this cluster

If government paper is your starting point, our RBI Retail Direct walkthrough takes you from account opening to your first auction. If corporate bonds tempt you, read the platform review of GoldenPi, Aspero, IndiaBonds, Wint Wealth, Jiraaf (and what happened to TapBonds) before you sign up anywhere. For the fund route, our Bharat Bond ETF post covers the AAA-ladder ETF, and the mutual fund taxation guide handles the tax mechanics that apply to debt funds. Gold money belongs in the Sovereign Gold Bond guide, not here.

This guide is educational, not investment advice. Bond prices and yields move daily; confirm live figures on RBI, CCIL or exchange pages before transacting, and consult a SEBI-registered adviser for decisions specific to your situation.