India’s bond market is one of Asia’s largest, but most retail investors access only a small part of it. Behind the headlines about the RBI repo rate and the 10-year G-sec yield are dozens of instrument types. They differ in who issues them, how they pay interest, how they are taxed, and what can go wrong.
This guide maps the main types of bonds you can access, the benefits they may offer, and the risks you should weigh before any investment in bonds in India.
Types of Bonds in India
1. Government Securities (G-Secs)
Dated G-Secs are issued by the central government through the RBI, with tenures typically ranging from 2 to 40 years. They generally pay coupons half-yearly. They are generally considered to carry lower credit risk because the Government backs them, though the market price of a bond sold before maturity is not guaranteed and may be above or below your purchase price.
2. Treasury Bills (T-Bills)
These are short-term government instruments with tenures of 91, 182, or 364 days. They are issued at a discount and repaid at face value. The difference is your return.
3. State Development Loans (SDLs)
SDLs are issued by state governments through RBI auctions. They usually yield a small spread over central G-Secs of similar maturity, reflecting lower liquidity and heavier supply.
4. PSU Bonds
These are issued by public sector undertakings such as power, railway, and infrastructure financiers. Many carry AAA ratings, but they are rated on their own credit and are not automatically sovereign obligations.
5. Corporate Bonds and Non-Convertible Debentures (NCDs)
Corporate bonds are issued by private companies, banks, NBFCs, and housing finance companies. NCDs are a common form: debentures that cannot be converted into equity. They may be:
- Secured: backed by a charge on specific assets, monitored by a SEBI-registered debenture trustee
- Unsecured: no specific asset backing, so they rank lower in repayment
- Public issues: offered to retail investors through an exchange-bidding process, often with a ₹1,000 face value
- Privately placed: later listed and available on the secondary market; SEBI cut the minimum face value for these to ₹10,000 in 2023
6. Tax-Free and 54EC Bonds
Tax-free bonds from entities such as NHAI and REC are no longer being freshly issued, but older issues trade on exchanges. 54EC bonds generally allow eligible long-term capital gains from land or buildings to be reinvested for tax relief, subject to limits and conditions.
7. RBI Floating Rate Savings Bonds
These are seven-year, non-tradable bonds whose rate resets every six months at the NSC rate plus 0.35%. The rate for July–December 2026 is 8.05% p.a., per Business Standard (July 2, 2026).
Important update: Sovereign Gold Bonds have not had a fresh subscription tranche since SGB 2023-24 Series IV in February 2024, as confirmed on the RBI SGB portal in October 2026. Existing SGBs trade only on the secondary market.
Bonds by Tenure
Tenure shapes how a bond behaves when rates move:
| Tenure band | Typical range | Rate sensitivity |
| Short-term | Up to about 3 years | Lower |
| Medium-term | About 3 to 7 years | Moderate |
| Long-term | 7 years and above | Higher |
Medium-tenure bonds sit in the middle. They lock in a coupon for several years without the larger price swings of 10–30-year paper.
Benefits of Investing in Bonds in India
Here are some of the benefits of investing in bonds in India that are mentioned below-
- Predictable cash flows: coupons at pre-defined intervals, subject to the issuer meeting its payment obligations
- Fixed returns: the coupon rate is set at issue for fixed-rate bonds
- Choice of credit risk: a range from sovereign paper to AAA, AA and A-rated corporate bonds
- Diversification: bond prices often behave differently from equities
- Option to sell early: listed bonds can generally be sold before maturity, subject to buyer availability and market price
- Transparency: listed issuers must disclose financials, ratings and material events to the exchanges
Key Risks to Keep in Mind When Investing
Credit Risk
The issuer may delay or default. Ratings help, but they are opinions and can change. Defaults among Indian NBFCs and infrastructure companies between 2018 and 2020 showed how fast a rating can fall.
Interest Rate Risk
When yields rise, existing bond prices generally fall. In early June 2026, the 10-year G-sec yield climbed above 7% even after 125 bp of repo cuts in 2025. Oil prices and inflation worries outweighed the policy easing.
Liquidity Risk
Many corporate bonds trade infrequently. Listing does not guarantee a buyer.
Reinvestment Risk
If rates fall, coupons and maturity proceeds may have to be reinvested at lower yields.
Call and Structural Risk
Some bonds allow the issuer to repay early (call options). Perpetual and subordinated bonds rank lower in repayment and carry extra structural risk.
How Bonds Are Taxed in 2026?
- Interest is generally taxable at the slab rate
- TDS generally 10% on listed debenture interest; generally not deducted on central G-Sec interest
- Listed bonds held more than 12 months: generally 12.5% LTCG without indexation
- Listed bonds held 12 months or less: generally at slab rate
- Unlisted bonds and MLDs: generally at slab rate, whatever the holding period
Illustrative example: You buy a listed bond for ₹50,000 and sell it after 14 months for ₹56,000. The ₹6,000 gain would generally be taxed at 12.5%, which is ₹750 before surcharge and cess. This example is illustrative only.
Conclusion
Investment in bonds in India now offers a wide menu: sovereign G-Secs and T-Bills, SDLs, PSU paper, and a growing set of rated corporate bonds and NCDs. Each brings fixed returns and regular income with its own mix of credit, rate and liquidity risk. The skill lies in matching tenure, rating and tax treatment to your situation. To compare rated bonds by tenure and payout, explore the listed options on StableBonds.
FAQs
Which types of bonds are available to retail investors in India?
G-Secs, T-Bills, SDLs, PSU bonds, corporate bonds and NCDs, tax-free bonds (secondary market only), 54EC bonds and RBI Floating Rate Savings Bonds.
Are government bonds risk-free?
No bond is risk-free. G-Secs carry lower credit risk, but their prices fluctuate with interest rates.
Is interest from bonds taxable?
Generally, yes, at your slab rate, except for specific tax-free bonds.
What is an NCD?
A non-convertible debenture: a debt instrument that pays interest and cannot be converted into shares.
Can I sell bonds before maturity?
Listed bonds generally can be sold, subject to buyer availability and market price.