When I consider an investment, I want to understand what will happen to my money. With corporate bonds, I begin with three questions: which company am I lending to, when will it pay interest, and when is it expected to return my money?
I can now purchase corporate bonds online without calling a broker or asking someone to place an order for me. However, an easier buying process does not remove the need to understand the investment.
First, I would understand how a bond works
Buying a corporate bond means lending money to a company. In return, the company agrees to pay interest and repay the borrowed amount under the bond’s terms.
For example, a bond with a face value of ₹10,000 and an annual interest rate of 8% would pay ₹800 each year, provided the company meets its obligations. The bond’s terms explain when interest is paid and when repayment is due. The price I pay to buy that bond may differ from its face value.
Then, I would choose a registered platform
Buying “without a broker” needs a little explanation. I can select a bond and place my order myself, but a regulated intermediary is still involved.
In India, Online Bond Platform Providers must be registered as stock brokers in the debt segment of a stock exchange. This means I can manage the purchase online without speaking to a broker personally. Before opening an account, I would verify the platform’s registration.
I would complete the account requirements
Before I purchase corporate bonds, I would complete the required identity checks, commonly called KYC. I would keep my PAN, bank details and demat account information ready. The demat account holds my bonds electronically.
I would then check the minimum investment and follow the platform’s payment instructions. On IndiaBonds, payment goes to the clearing corporation for settlement, after which the bonds are credited to the investor’s demat account. I would confirm that the bonds appear in my account once settlement is complete.
I would look beyond the advertised interest
A higher interest rate would make me look more closely at the company offering it. I would check its financial position, credit rating and repayment terms. A credit rating is useful, but I would never treat it as a guarantee.
I would also check the yield, which helps explain the return based on the price I pay. A bond’s interest rate alone does not tell me this. Buying above or below face value can change the return I earn.
Before paying, I would review the total cost, including applicable charges and accrued interest. Accrued interest is the interest built up since the previous interest payment and may be payable to the seller.
Finally, I would consider my own needs
When asking “are corporate bonds better than government bonds,” I would consider both income and repayment risk. Corporate bonds may offer higher yields, while government securities carry sovereign backing. Their market prices can still change before maturity.
I would also think about when I need the money. If I might need it early, I would check the options for selling instead of assuming an immediate exit will be available.
For me, the decision to purchase corporate bonds would come down to understanding the company, the payments and the risks. Being able to explain those details in my own words would help me make a more considered choice.
