How to Buy a Corporate Bond Without Getting Burned

Most retail investors in India buy NCDs and corporate bonds without reading the offer document, without checking the issuer’s debt-to-equity ratio, and without understanding what happens if the issuer misses a payment. This article is a structured checklist. None of it is investment advice — it is due diligence hygiene that applies before any fixed-income purchase.

Where corporate bonds actually trade in India

The Indian corporate bond market is large (outstanding issuances exceed ₹40 lakh crore) but liquidity is heavily concentrated in the top 50–100 issuers. Here is where retail investors can access the market:

BSE and NSE secondary market: Listed NCDs and bonds trade on the debt segment. Volumes are thin for most issuers — on any given day, hundreds of listed bonds have zero trades. If you buy a bond in the secondary market and need to sell before maturity, you may not find a buyer at a fair price.

Online Bond Platform Providers (OBPPs): SEBI-registered platforms that aggregate bonds from primary issuances and secondary markets and allow retail purchase. OBPPs must be registered with SEBI and maintain a verified product catalogue — verify current SEBI registration before transacting on any platform. The minimum investment on most OBPP platforms ranges from ₹10,000 to ₹1,00,000 depending on the bond.

NSE goBID / BSE Direct: For public issues of NCDs (IPO-like primary offers), you can apply through your broker’s platform, ASBA, or the exchange’s direct interfaces. Public NCD issues are announced in the financial press and have a fixed subscription window.

RBI Retail Direct: For G-Secs (central government bonds), T-Bills, SDLs, and Sovereign Gold Bonds only. No corporate bonds. See our RBI Retail Direct guide for more on this route.

Ticket size: the reality

Listed bonds in India generally have a face value of ₹1,000 or ₹10,00,000 (₹10 lakh). The secondary market minimum is usually one bond. But market liquidity determines whether you can practically trade at that size.

For most retail-accessible NCDs (Shriram Finance, Muthoot, HDFC, Tata Capital etc.), minimum investment in secondary market is ₹1,000–₹10,000. For institutional-grade debentures (PSU bonds, bank tier-2 bonds), the minimum lot is frequently ₹10 lakh or ₹1 crore — effectively inaccessible to retail directly. OBPPs sometimes slice these into smaller lots, but verify you are getting the actual bond and not a structured product.

What to check before buying: a checklist

1. Verify the ISIN and the offer document. Every listed bond has an ISIN. Use SEBI’s SCORES database, BSE listings, or the issuer’s website to find the Information Memorandum (IM) or Prospectus. The IM contains the exact terms: coupon, maturity, call/put options, security details, covenants, and use of proceeds. Do not buy any NCD without reading at least the key terms section.

2. Check the current credit rating and trend. A rating is a snapshot. What matters more is the trend: has the issuer been upgraded, reaffirmed, or downgraded over the past two years? A series of reaffirmations suggests stability. A downgrade from AA to A+ is a one-notch cut but still investment grade; a cut from BBB− to BB+ is a crossing into speculative grade, which is material. Check our ratings page for the latest actions.

3. Look at the issuer’s debt-to-equity ratio. This is in the offer document and the issuer’s annual report. An NBFC with a leverage ratio (total borrowings / net worth) above 7–8x is operating with very thin equity cushion. A housing finance company at 10x is not unusual, but the higher the leverage, the more sensitive the business is to funding cost increases or asset quality deterioration.

4. Assess the security (or lack of it). Secured NCDs are backed by specific assets (typically receivables or property), and in a default the secured creditors have priority over the asset pool. Unsecured NCDs have no such claim. Some “secured” structures use floating charges that offer limited practical protection. Read what the security actually is, not just the label.

5. Understand the call/put options. A callable bond can be redeemed early by the issuer, typically when rates fall and they can refinance cheaper. If you hold a 9.5% NCD and rates drop to 8%, the issuer will likely call it — you get your principal back but must reinvest at lower rates. This is reinvestment risk. A puttable bond lets you redeem early, which is in your favour. Always check call dates and call prices.

6. Understand the liquidity reality. Before you buy, check the last few months of secondary market volume for that ISIN on BSE. If the average daily volume is zero, you are effectively holding to maturity. That is not inherently bad — many retail bond investors hold to maturity intentionally — but you should not plan to sell before maturity if the market is illiquid.

Red flags worth stopping for

• Watch Negative or downgrade in the last 90 days. Indicates a specific stress event is active. Not an automatic no, but requires understanding what triggered the action.
• Multiple rating agency withdrawals. If an issuer has been rated by CRISIL, ICRA, and CARE, and two agencies have withdrawn, ask why. Issuers sometimes drop agencies after disagreements on rating levels.
• Rapid leverage increase. If a company’s borrowings have doubled in two years without proportional growth in assets or earnings, that is worth investigating before lending to them.
• Promoter pledging above 50%. When promoters have pledged a large fraction of their shareholding to borrow against, a stock price decline can trigger forced selling, management instability, and knock-on effects on the company’s creditworthiness.
• Yields significantly above peers. If a bond is offering 3–4% more than similarly-rated peers in the same sector, the market is pricing in risk that the rating does not fully reflect. High yield is not automatically bad — but it is a signal to read more carefully, not less.
• Issuer has not published audited accounts in the last 12 months. This is a basic hygiene failure. SEBI requires listed companies to disclose quarterly results. If results are consistently delayed, it is a red flag.

The process: step by step

1. Identify the bond (ISIN, issuer, terms) through the screener or an OBPP.
2. Download and read the offer document / IM from BSE or the issuer’s investor relations page.
3. Check the current credit rating and rating history on CRISIL / ICRA / CARE website, or our ratings page.
4. Check secondary market liquidity (BSE debt segment, search by ISIN).
5. Verify the OBPP is currently SEBI-registered (check SEBI SCORES or the SEBI website).
6. Calculate YTM at the current market price using the YTM calculator. Compare to alternatives at similar credit quality and duration.
7. Ensure the investment fits your risk tolerance and liquidity needs. Do not put money you will need in 6 months into a 5-year NCD with no secondary market.

A note on concentration

Even within fixed income, concentration risk is real. Holding 60% of your debt portfolio in one issuer — even a AAA-rated one — is not prudent. Credit ratings are point-in-time assessments, and defaults in the Indian market have occurred at investment-grade ratings. A diversified approach across issuers, sectors, and maturities reduces the impact of any single adverse event.