The financial sector in India has been reshaped dramatically within the last decade. The rising preeminence of corporate bonds in the debt market is considered to be one of the most striking alterations. Corporate bonds were once viewed as an unpopular niche investment channel by large institutions, but today they are opening up to retail investments, wealth managers, and fintech companies alike.
As India gears up to become a $5 trillion economy, infrastructure development and private sector growth will require massive capital inflows, and corporate bonds are becoming the preferred route for raising that capital. In FY2023, the Indian corporate bond market stood at approximately ₹43 lakh crore, and the RBI projects it will grow to ₹100 lakh crore by 2030, thanks to ongoing financial reforms, investor awareness, and digital platforms like Stashfin supporting new-age debt investment tools.
This blog explains the rise of corporate bonds in India in their changing landscape of the debt market, their advantages and downsides, and their implications on investors and the economy.
What Are Corporate Bonds?
Corporate bonds are debt securities issued by companies to raise capital. When an investor purchases a corporate bond, he is essentially loaning his money to the firm over a fixed duration in exchange for a recurring interest rate payment (or coupons) and the principal at the end date of the bond term.
They are of two main types:
Non-convertible debentures (NCDs): Cannot be converted into equity shares
Convertible debentures: These can be converted to equity after some time
Agencies such as CRISIL, ICRA, and CARE rate these instruments depending on the creditworthiness of the issuing company. Better quality bonds (AAA or AA) are safe, and further, the latter have good returns but are riskier to invest in.
The Rise of Corporate Bonds in India
1. Reduced Dependence on Banks
Traditionally, Indian companies have relied heavily on bank loans for funding. However, with stricter lending norms, high non-performing assets (NPAs), and risk-averse behavior, companies are increasingly turning to bonds as a faster and cheaper financing route.
According to the Securities and Exchange Board of India (SEBI), the corporate bond market now accounts for over 40% of private debt financing, up from 25% in 2010.
2. Government Push & Policy Reforms
The RBI and SEBI have introduced several reforms to develop the corporate bond market:
- Electronic Book Mechanism (EBM) to bring transparency
- Reduced stamp duty on bond transactions
- Mandatory bond issuance for large corporates (25% of borrowing to be via bonds)
- These policies are making the bond market more transparent, liquid, and accessible for investors.
3. Fintech Platforms Fueling Accessibility
Previously, bond investments required a Demat account, large capital, and broker involvement. Today, digital investment platforms like Stashfin are democratizing access to bonds, allowing retail investors to invest in AAA-rated corporate bonds with as little as ₹10,000.
This has led to a surge in first-time investors entering the debt space.
Advantages of Investing in Corporate Bonds
Corporate bonds offer a balance between safety and return, making them an attractive alternative to traditional savings tools.
1. Higher Returns than FDs
While fixed deposits offer 6–7% returns, corporate bonds can offer 7–10% or more, depending on the credit rating and tenure.
2. Predictable Income
Most bonds pay fixed interest semi-annually or annually, giving investors a steady and predictable income, ideal for retirees and conservative investors.
3. Portfolio Diversification
Including bonds in your investment strategy can reduce portfolio risk. Bonds tend to be less volatile than equities and offer capital protection.
4. Liquidity
Many listed corporate bonds are traded on stock exchanges and can be sold before maturity, offering better liquidity than traditional small savings schemes.
Risks and How to Manage Them
Like any financial instrument, corporate bonds carry risks:
1. Credit Risk
If the issuer defaults, investors may lose part or all of their capital. To manage this, invest in high-rated bonds (AAA/AA) and check the credit profile of the issuer.
2. Interest Rate Risk
Bond prices fall when interest rates rise. Short-duration bonds are less sensitive to interest rate movements.
3. Liquidity Risk
Some bonds, especially unlisted or low-rated ones, may be hard to sell. Always check for liquidity before investing.
Impact on India’s Debt Market
The rise of corporate bonds is reshaping India’s debt market in the following ways:
1. Diversified Borrowing Channels
It reduces over-reliance on banks and NBFCs for funding and provides companies with a cost-effective way to raise long-term capital.
2. Better Risk Distribution
Wider participation from retail, HNIs, and institutional investors distributes credit risk more evenly across the system.
3. Efficient Capital Allocation
Bonds encourage long-term infrastructure and capital expenditure, which is essential for India’s economic growth. Corporate bonds are increasingly funding green energy, roads, airports, and digital startups.
4. Boost to Financial Inclusion
Digital platforms and simplified KYC norms are encouraging more Indians, even from Tier 2 and 3 cities, to explore bond investing.
Key Stats You Should Know
- India’s corporate bond market has grown at a CAGR of 17% over the past decade.
- Over ₹8 lakh crore worth of corporate bonds were issued in FY2023.
- Retail participation grew by more than 25% in the last two years, driven by digital platforms.
- SEBI aims to increase bond market penetration to 15% of GDP by 2030 (currently at ~8.5%).
Tax Implications of Corporate Bonds
- Interest income from bonds is taxable as per your income slab.
- If you sell listed bonds before maturity, capital gains may apply:
- Short-term (held < 12 months): taxed as per your slab
- Long-term (held > 12 months): taxed at 10% without indexation
- Despite the tax, post-tax returns from corporate bonds can still outperform traditional instruments like FDs.
Is Now the Right Time to Invest?
India’s corporate bond market is no longer just for the elite—it’s becoming a mainstream investment option for the financially savvy. With higher returns than FDs, transparent regulations, and the emergence of digital platforms like Stashfin, corporate bonds offer a unique opportunity to earn better returns while supporting the country’s economic growth.
As India builds its debt capital market to global standards, corporate bonds are poised to play a central role. Whether you’re an investor looking for steady income or a professional planning long-term wealth, now is the right time to explore this asset class.
Explore curated bond options by Stashfin and take your investment journey a step ahead—with smart, secure, and stable opportunities.
