When friends ask me what are corporate bonds, I begin with a simple picture. Think of a company that wants to build a new plant or expand its services. Instead of taking a bank loan, it invites investors like you and me to lend money. In return, the company promises to pay interest at regular intervals and to return the principal on a fixed date. That promise is the corporate bond.
How the structure works
Every bond spells out four essentials you should know before investing.
- Face value, which is the amount you get back at maturity.
- Coupon, which is the interest rate.
- Payment schedule, which may be monthly, quarterly, half yearly, or annual.
- Maturity date, which is when the principal is repaid.
Numbers make this real. If I buy a bond with a face value of ₹1,000 and a 9 percent coupon that pays quarterly, I receive ₹22.50 every quarter. On maturity, I get back ₹1,000. Market prices move daily, but the cash flow written in the document is the anchor I rely on.
Why companies issue corporate bonds
Companies raise money for expansion, refinancing, and day to day operations. Issuing corporate bonds can be more flexible than a loan, especially for well rated issuers such as PSUs and large NBFCs. For investors, this creates a wide menu of tenors and payout options.
What I check before I invest
Credit quality is my first filter. Rating agencies grade issues from AAA downward. A higher rating usually signals lower expected default risk and often a lower yield. Ratings are only an opinion, so I still read the financials and the purpose of borrowing.
Next, I look at security and terms. Is the bond secured by assets. Are there covenants that protect investors. Is there a call or put option that can change my holding period. These details decide how protected I am during stress.
Then I consider interest rate sensitivity. Bond prices and market rates usually move in opposite directions. Longer maturity bonds react more when rates change. I match the tenor to my own time horizon so that a short term need does not force me to exit at a poor price.
I also check liquidity. Some listed corporate bonds trade actively while others do not. If I may need an early exit, I prefer bonds that show regular quotes and reasonable volumes.
Primary and secondary routes
There are two clear paths. In the primary market, I apply to public issues. The coupon, maturity, and minimum application size are known in advance. On allotment, bonds credit to my demat. In the secondary market, I buy existing bonds through a trading account on registered platforms with digital settlement.
Risks I respect
Every bond carries risk.
- Credit risk is the chance the issuer struggles to pay.
- Interest rate risk is the fall in price when market rates rise.
- Liquidity risk is difficulty selling at a fair price.
- Reinvestment risk is receiving coupons when available rates are lower.
Tax rules also matter and depend on the product and the holding period, so I always review the latest guidance before I decide.
My quick checklist
Before adding corporate bonds to my portfolio, I confirm the rating and recent financial trends, the yield to maturity and cash flow schedule, the presence of security and covenants, the trading liquidity, and whether the tenor fits my goal.
