Bonds & Bond Trading: A Practical Guide for the Indian Investor

Most Indian investors grow up learning about fixed deposits and mutual funds, and bonds somehow stay in the background. That is changing now. With the 10-year government bond yield sitting near 6.95% as of early September 2026, and the repo rate holding at 5.25%, bonds have become genuinely interesting again for anyone chasing predictable income.

What Exactly Is a Bond?

A bond is simply a loan. When you buy a government bond or a corporate bond, you are lending money to the issuer for a fixed period, and in return you get periodic interest, called the coupon, plus your principal back at maturity. A ₹1,000 face value bond carrying a 7.5% coupon pays you ₹75 a year until it matures.

Government Securities vs Corporate Bonds

Government securities, or G-Secs, are issued by the RBI on behalf of the central government and are considered the safest instruments in the country, since sovereign default risk is close to zero. Corporate bonds pay more, sometimes 1-3 percentage points higher than a similarly dated G-Sec, but that extra yield compensates for credit risk. A AAA-rated corporate bond from a large NBFC might yield 8-8.5%, while a lower-rated paper could offer 10% or more, and that gap is the market telling you where the risk actually sits.

Why Yields Matter More Than the Coupon

Bond prices and yields move in opposite directions. If you bought a bond at ₹1,000 with a 7% coupon and market yields later rise to 8%, your bond's resale value drops, because nobody wants your lower-paying paper at face value anymore. This inverse relationship is the single most important thing to internalise before trading bonds, not just holding them to maturity.

Recent News : Indian Bond Yields Near 7% As Rate Hike Concerns Trigger Selloff

How Retail Investors in India Can Actually Buy

1. RBI Retail Direct: a free government portal to buy G-Secs directly, in lots as small as ₹10,000, without a broker.
2. NSE goBID and BSE Direct: stock exchange platforms for bidding in G-Sec auctions.
3. Corporate bonds via demat: many are now listed on NSE/BSE and tradeable like shares, some with lot sizes as low as ₹1,000 after SEBI's push to lower minimum investment size.
4. Bond mutual funds and ETFs: for diversification without picking individual papers, a target maturity fund or a bond ETF spreads risk across dozens of issuers.

A Few Numbers Worth Remembering

• Duration risk: a bond with 10-year duration loses roughly 10% of its value for every 1% rise in yields. Shorter duration bonds, in the 2-3 year range, are far less volatile.
• Taxation: interest from bonds is taxed at your slab rate, so someone in the 30% bracket effectively earns less post-tax than the headline coupon suggests, unlike some tax-free PSU bonds issued years ago.
• Liquidity: G-Secs and large corporate bonds trade with tighter spreads, often under 5-10 basis points, while smaller issues can carry wide bid-ask gaps of 50-100 basis points, making entry and exit costlier.

What Actually Works for Most People

For a retail investor without the time to track every RBI policy meeting, laddering, buying bonds across different maturities such as 2, 5, and 10 years, smooths out reinvestment risk and gives a steady stream of maturing capital. Trading bonds actively, trying to catch every yield swing, is a game better suited to institutions with real-time data feeds. Most individuals are better served holding to maturity and letting the coupon do the work.

Bonds will never give you multibagger stories, but in a portfolio otherwise leaning on equities, they are what keep you sleeping at night.