Investors prefer bonds as these instruments ensure steady returns on their capital while reducing market-linked losses. You can perceive the benefits of these investments more clearly as you approach your financial goals, particularly when stock market fluctuations threaten to undermine your gains.
Corporate bonds serve as debt obligations and are generally issued by businesses that are in urgent need of capital. When you agree to participate in some of the best corporate bonds, you start paying money to the bond issuer in exchange for a promised interest or coupon rate. Finally, when the bond term ends, you get back your invested principal.
How Do Corporate Bonds Work?
Corporate bonds secure loan payments made individually to a company throughout a predetermined investment term. In exchange, the company or bond issuer pays interest, generally semi-annually, to the bondholders as per an agreed-upon rate. Finally, the bondholders obtain the face value of the bond after maturity.
Here you can understand the concept better as we discuss a scenario surrounding a fixed-rate bond. Suppose, you invest ₹5,000 in a bond that agrees to pay 4% fixed interest for 10 years. In that case, the bond issuer will pay you ₹200 per year which will result in a net profit of ₹2,000 over a decade.
Fixed-rate bonds are the best corporate bonds among investors. Apart from that, some most popular types are divided into:
- Floating-rate Bonds
These securities offer variable interest payments which are subject to change based on secondary market conditions. Usually, they offer higher interest compared to fixed-rate bonds but are at a greater risk of default.
- Convertible Bonds
Convertible bonds provide the issuers with some flexibility where they can repay their investors with common stocks at the time of maturity.
- Zero-coupon Bonds
You do not get interest income on investing in these bonds. However, you get the option to buy units below face value and receive the full value when the bond matures.
List of Best Corporate Bonds to Invest in India
The following table outlines corporate bonds interest rates offered by some of the top investment prospects that you can consider in 2024-25.
| Bond Name | Coupon Rate | Maturity Date |
| Kotak Investment Advisors Limited | 10.00% | 26 September, 2025 |
| Aditya Birla Finance Limited | 7.77% | 9 October, 2033 |
| India Grid Trust | 7.90% | 6 May, 2031 |
| Axis Finance Limited | 8.07% | 28 October, 2033 |
| HDB Financial Services Limited | 8.18% | 22 December, 2033 |
| Poonawalla Fincorp Limited | 10.40% | 7 December, 2026 |
| Power Grid Corporation of India Limited | 9.65% | 28 February, 2025 |
| SBI Cards and Payments Services Limited | 9.55% | 29 January, 2029 |
| Kudgi Transmission Limited | 9.50% | 25 April, 2035 |
| Fullerton India Credit Company Limited | 9.45% | 20 July, 2028 |
All the above-mentioned bonds exhibit an excellent credit rating of AAA issued by CRISIL. Therefore, you can consider investing in them for the long term to generate steady income and potentially high returns.
How to Invest in Corporate Bonds?
Once you understand the key features of bonds, you can analyse how to reap their benefits. Here is the step-by-step process to start investing in corporate bonds:
Step 1: Define Your Investment Goals
Start by setting solid financial goals and spend considerable time assessing the optimal risk tolerance limit and investment horizon. This is the foundation step to pick the right bond for your future needs.
Step 2: Conduct Research
It is crucial to verify the bond issuer’s creditworthiness, the offered coupon rate and maturity term before investing in a specific corporate bond. So, you should spend enough time exploring the individual product features which will lead to a well-informed decision.
Step 3: Open a Demat Account
Opening a demat account is very easy with the help of registered online brokerage platforms these days. Via your demat account, you can readily trade corporate bonds on the exchange.
Step 4: Place Order
Now, you can finally place orders for purchasing bond units. The minimum order value will vary depending on the type of bond you select.
Step 5: Hold Your Positions
To reap the maximum benefits, you should hold the bond units until they mature. Meanwhile, you will receive interest earnings at regular intervals and the principal amount will be credited upon maturity.
Step 6: Monitor the Performance
To balance the performance of your portfolio, it is essential to stay in touch with your bond’s performance as it will allow you to readjust holdings swiftly.
Final Word
The best corporate bonds can appear as a lucrative investment opportunity for those looking to diversify their assets. Thus, if you are among them and considering investing in company bonds, speak to a qualified financial advisor first. They can guide you in gauging a bond’s relevance to your varying investment goals over a predetermined time frame.
Frequently Asked Questions
Generally, corporate bonds offer comparatively more yield than government bonds. As their returns are directly reliant on secondary market conditions, investors can expect better returns, which in turn, boosts their income potential.
Bonds carry a specific degree of credit risk indicating that the respective issuer can default on single or multiple payments during the investment term. Therefore, you can assess the risk by viewing credit ratings offered by reputed bodies like CRISIL, ICRA, CARE, etc., before investing.
The maturity of a bond signifies a date on which the principal amounts of the investors are promised to be repaid. On this date, the company pays back all outstanding debts to the bondholders. Typically, corporate bonds come with a maturity period of 10-15 years.
Bonds usually disburse interest payouts to their holders every 6 months. You can continue to receive this benefit until your bonds mature or sell them beforehand to realise capital gains.
There are two primary ways to earn profits from bonds: through coupon payments and by selling bond units at a higher price than their purchase price.
