What Is Corporate Bond – Features, Types, And Risk Factors

Key Takeaways:
 

• Corporate bonds are fixed-income instruments issued by companies to raise funds and offer regular interest without giving investors any ownership.
   
• Interest is paid periodically, often every 6 or 12 months, and the full amount invested is returned at maturity, typically between 1 to 10 years.
   
• Corporate bonds come in various types, such as secured, unsecured, zero-coupon, callable, and puttable, each with its own purpose and risk level.
   
• Fintech companies often issue bonds to fund loans, expansion, or working capital, making corporate bonds a growing option in alternative finance.
   
• Risks like credit risk, interest rate risk, and liquidity risk should always be checked before investing, especially in lesser-known or low-rated issuers.
   
• Corporate bonds usually offer better returns than bank FDs, but investors must research issuer credibility, bond structure, and market trends.

BONUS: CORPORATE BONDS IN THE 2–3-YEAR SEGMENT ARE CURRENTLY OFFERING THE BEST RISK-ADJUSTED RETURNS AMONG FIXED INCOME OPTIONS, ESPECIALLY IN A CLIMATE OF POTENTIAL ECONOMIC SLOWDOWN AND FALLING INTEREST RATES.

Corporate bonds are fixed-income instruments issued by companies to raise money from investors. These bonds offer regular interest (fixed or floating) and repay the full amount at maturity. Investors do not get company ownership, just interest income and capital protection.

Aakash, a 34-year-old startup founder from Pune, wanted a safe investment option in 2023. He had ₹10,00,000 and wanted better returns than a fixed deposit. A friend suggested investing in corporate bonds issued by a fintech NBFC offering 9.25% annual returns for 3 years, rated AA by CRISIL.

Before investing, Aakash checked the company’s financials and credit history. The bond paid interest every 6 months, earning him ₹46,250 annually. After 3 years, he received the full ₹10,00,000 back.

This blog walks you through what Aakash learned, from key features and types of corporate bonds to risks, ratings, and real data.

Key Features of Corporate Bonds

Corporate bonds work like loans, except the company borrows from you. In return, it pays interest and returns your money at maturity. Here are the main features:
 

1. Fixed or Floating Interest Rates: Bonds may offer a fixed interest rate (like 9.25% per year) or a floating rate linked to a benchmark, such as the RBI repo rate.
    
2. Fixed Maturity Period: Every bond has a clear end date, often between 1 to 10 years. Aakash’s bond, for example, matures in 3 years.
    
3. Credit Ratings by Agencies: Agencies like CRISIL, ICRA, or Fitch rate the bond’s safety. A higher rating (AAA/AA) means lower default risk.
    
4. Tradable Before Maturity: Many corporate bonds can be sold in secondary markets, allowing early exit if needed.
    
5. Regular Interest Payments: Most bonds pay interest every 6 or 12 months. Aakash receives ₹46,250 twice a year, totalling ₹92,500 annually.

Corporate bonds are structured in a way that offers regular interest and capital safety. Understanding their features helps investors know what to expect.

Comparison of Corporate Bond Features

The table below highlights key features using Aakash’s bond as an example for easy understanding:
 

This table shows how bond details affect returns and investment flexibility.

Types of Corporate Bonds

Corporate bonds come in different forms depending on the company’s need for funds and the investor’s risk appetite. Fintech companies often use these bonds to raise quick capital for lending, expansion, or infrastructure: 

1. Secured Bonds: These are backed by specific company assets. If the company fails to repay, those assets can be sold to recover money.
    
2. Unsecured Bonds: These have no collateral. Investors trust the company’s ability to repay, based on its credit score and business health.
    
3. Zero-Coupon Bonds: These do not pay interest regularly. Instead, they are sold at a lower price and paid back at face value on maturity.
    
4. Callable Bonds: The company has the right to buy back these bonds before maturity. This usually happens when interest rates fall.
    
5. Puttable Bonds: Investors can sell these bonds back to the company before maturity, usually when interest rates rise or better options become available.

Each type of corporate bond offers different levels of risk, return, and flexibility, allowing investors to choose based on their financial goals and market outlook.

Why Invest in Corporate Bonds?

In mid-2024, Priya, a 42-year-old HR manager in Mumbai, had ₹5,00,000 in a fixed deposit earning 6.2% per year. She moved this amount into a corporate bond from a fintech NBFC offering 8.75% interest for two years. 

As a result, she earned ₹43,750 annually instead of ₹31,000, an additional ₹12,750 per year. Over two years, her total passive income increased by ₹25,500. This extra money helped her prepay a personal loan six months earlier than planned.

Corporate bonds have become popular as interest rates on fixed deposits and savings accounts continue to fall. In comparison, bonds offer better fixed returns and consistent income.

Corporate bonds offer better returns than many traditional products, especially in a falling interest rate environment. Many investors now prefer these bonds because:

• Higher Returns Than Savings: Corporate bonds offer better interest than most FDs or savings accounts. This helps grow money faster over time.
   
• Diversification: Investors can spread risk by investing across various industries. This improves portfolio stability.
   
• Regular Income: Bonds pay interest on a fixed schedule, often semi-annually. This creates a predictable cash flow.
   
• Exit Flexibility: Many bonds can be sold before maturity in secondary markets. This adds liquidity and reduces lock-in pressure.

These benefits make corporate bonds a practical choice for risk-aware, income-focused investors.

Corporate Bonds vs. Other Instruments:

The table below compares returns, liquidity, and tax benefits for common financial instruments:
 

This table shows how corporate bonds strike a balance between returns and risk when compared with other options.

Risk Factors in Corporate Bonds

Every investment has risks. As Aamir Khan said, “Risk toh hota hai dono mein. Bas equity mein zyada dikhai deta hai.” Corporate bonds may seem safer, but they are not risk-free.

Example: Ramesh, 58, invested ₹5 lakhs in a low-rated fintech bond in 2022. It promised 10.5% interest but was rated B–. In 2024, the issuer defaulted. Ramesh lost his entire capital and didn’t receive any interest.

Risks to Remember:

While safer than equities, corporate bonds still come with risks that must be understood before investing:

• Credit Risk: The company may fail to repay the money.
   
• Interest Rate Risk: Rising interest rates can reduce bond value.
   
• Liquidity Risk: Selling before maturity may be difficult.
   
• Inflation Risk: High inflation can reduce real returns.

Knowing these risks helps investors choose bonds wisely and reduce the chances of capital loss.

Common Risks in Corporate Bonds

The table below outlines each risk with its impact:
 

This table helps investors evaluate how different risks affect their bond investment decisions.

Role of Credit Ratings

Credit ratings help investors judge the financial health of bond issuers. Agencies like CRISIL, ICRA, and Fitch assign these ratings.

Ratings Guide:

The table below explains how bond ratings reflect risk levels for investors:
 

This guide makes it easier to filter safe investments from risky ones.

Current Data:
As per SEBI 2025, over ₹3.7 lakh crore in corporate bonds were issued in FY 2024–25. Over 65% were rated AA or above.

Use of Corporate Bonds in Fintech

Fintech companies issue bonds to raise funds for operations, expansion, or debt repayment:

• Lending Startups: Issue secured bonds to support short-term loans.
  This helps scale their credit business without external borrowing.
   
• BNPL Companies: Raise funds using short-term zero-coupon bonds.
  This keeps customer payouts smooth without added cost.
   
• Crowdfunding Platforms: Let investors buy small bond units.
  This brings more retail participation into fixed-income products.
   
• Bond Marketplaces: Platforms like Wint Wealth, GoldenPi, and Grip Invest enable easy access.
  This helps investors discover high-yield, verified bonds easily.

These use cases show how corporate bonds have become vital tools in modern fintech growth.

Conclusion

Corporate bonds are a good option for people who want better returns than fixed deposits, with less risk than shares. But like all investments, they have some risk. Before you invest, check the bond’s credit rating, how long it lasts, what type it is, and whether the company is trustworthy. Today, as fintech companies and traditional markets come together, corporate bonds are becoming an easy way to earn a steady income.

FAQs

1. How does a change in a bond's credit rating after issuance affect its resale value?

If a corporate bond's credit rating is downgraded, its resale value in the secondary market usually falls, as it now carries higher perceived risk.

2. Can interest earned from corporate bonds impact income tax slab classification?

Yes, if the interest income is significant, it can push the investor into a higher tax slab, affecting overall tax liability.

3. Are there lock-in periods for corporate bonds listed on bond marketplaces?

Generally, listed corporate bonds do not have lock-in periods, but liquidity depends on demand and trading volume in the secondary market.

4. What happens to bondholders during a company merger or acquisition?

Bond terms usually remain intact, but the acquiring company assumes the debt; however, credit ratings and future risk can change post-merger.

5. How are corporate bonds used in portfolio balancing for risk management?

Corporate bonds help reduce overall portfolio risk by providing stable, fixed income, especially when equity markets are volatile.
 

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LoansJagat Team

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