Bond Glossary

Accrued Interest

Accrued interest is the portion of the next coupon that the seller has earned since the last payment date. When you buy a bond between coupon dates, you pay accrued interest to the seller in addition to the clean price. On the next coupon date, you receive the full coupon amount.

Bond

A bond is a debt security. You lend money to the issuer (a corporate or government) for a fixed period in exchange for periodic coupon payments plus return of principal at maturity. Bonds are generally less volatile than equities and offer predictable cash flow, but they carry credit and interest-rate risks.

Bond Ladder

A bond ladder holds bonds with staggered maturity dates (e.g., 1, 3, 5, 7, 10 years). As each bond matures, the principal is reinvested at current rates. This smooths out interest-rate risk and generates predictable cash flows — a common retail-investor strategy for income.

Callable Bond

A callable bond gives the issuer the right (but not the obligation) to repay principal before the scheduled maturity date, typically after a "call protection" period. Issuers exercise calls when refinancing at lower rates becomes attractive, which transfers reinvestment risk to holders.

Coupon

The coupon is the interest the issuer pays to bondholders, usually annually or semi-annually. A 9% coupon on a ₹1,000 face value bond pays ₹90 per year. Coupons are fixed at issuance and do not change with market prices.

Coupon Frequency

Coupon frequency tells you the number of interest payments per year. Semi-annual (twice a year) is the most common Indian convention. Higher frequency means you receive smaller payments more often, which slightly improves effective yield through earlier reinvestment.

Credit Rating

Credit ratings (AAA, AA+, AA, A, BBB, BB, and lower) are opinions issued by agencies like CRISIL, ICRA, CARE, and India Ratings on an issuer's credit risk. AAA is the highest; ratings below BBB- are considered sub-investment grade. Ratings can be upgraded or downgraded as issuer fundamentals change.

Credit Spread

Also: Spread

Credit spread is the difference in yield between a corporate bond and a risk-free government bond (G-sec) of the same maturity. It compensates investors for credit risk and liquidity risk. Widening spreads usually signal increased perceived credit risk.

CRISIL

Also: Credit Rating Information Services of India Limited

CRISIL (Credit Rating Information Services of India Limited) is one of India's largest credit rating agencies. It rates corporate bonds, bank loans, and structured finance instruments. CRISIL ratings follow a similar scale to international agencies (AAA highest) but are not directly comparable globally.

Current Yield

Current yield is the annual coupon payment divided by the bond's current market price. Unlike YTM, it ignores capital gain or loss at maturity. For a bond with ₹80 coupon trading at ₹950, current yield is about 8.42%. Useful as a rough check but incomplete as a total-return measure.

Default

Default occurs when an issuer misses an interest or principal payment, violates a bond covenant, or files for bankruptcy. Bondholders then attempt recovery through the resolution process. Recovery rates vary widely based on seniority, collateral, and jurisdiction.

Demat Account

Also: Dematerialised Account

A demat account (dematerialised account) holds securities electronically, replacing paper certificates. In India, you need a demat account (with NSDL or CDSL) to hold listed bonds, G-secs bought via exchanges, and most OBPP transactions. Brokers and online bond platforms open demat accounts as part of onboarding.

Duration

Duration measures interest-rate sensitivity: a bond with duration 4 loses roughly 4% when rates rise by 1%. Longer maturities and lower coupons produce higher duration. For most retail decisions, duration is the single most useful risk metric after credit rating.

Face Value

Also: Par Value, Nominal Value

Face value (also called par value) is the amount the issuer promises to repay at maturity and the base on which coupon payments are calculated. Indian corporate bonds commonly have face values of ₹1,000 or ₹1,00,000. Market price can be above or below face value.

Fixed Rate Bond

Fixed rate bonds pay the same coupon amount every period until maturity. They expose holders to interest-rate risk: if market rates rise after issuance, the bond's price falls. Most Indian corporate bonds and G-secs are fixed rate.

Floating Rate Bond

Also: FRN, Floating Rate Note

Floating rate bonds link their coupon to a reference rate (like the RBI's repo rate or a T-bill yield) plus a fixed spread. Coupons reset at defined intervals (often quarterly). These bonds dampen interest-rate risk — when rates rise, so does the coupon.

G-sec

Also: Government Security, Sovereign Bond

G-secs are debt instruments issued by the Government of India through the RBI. They are considered sovereign risk-free and serve as the benchmark against which corporate bond yields are measured. Retail investors can access them via the RBI Retail Direct platform.

ICRA

Also: Investment Information and Credit Rating Agency

ICRA (Investment Information and Credit Rating Agency) is one of India's four major SEBI-registered credit rating agencies, alongside CRISIL, CARE, and India Ratings. It assigns long-term and short-term ratings to Indian issuers and debt instruments.

Interest Rate Risk

Interest rate risk is the sensitivity of a bond's price to changes in market rates. Longer maturities and lower coupons increase this risk. A bond with duration 5 loses roughly 5% when yields rise by 1 percentage point. Holding a bond to maturity eliminates price risk but not reinvestment risk.

ISIN

Also: International Securities Identification Number

ISIN (International Securities Identification Number) is a 12-character alphanumeric code that uniquely identifies a specific security. In India, ISINs start with "IN" and are assigned by NSDL and CDSL. Every listed bond has a unique ISIN — it is the canonical way to look up a specific issue.

Issuer

The issuer is the borrower raising capital through a bond issue. Issuer quality — measured by credit ratings, financial strength, and sector — is the primary driver of credit risk. In India, corporate issuers include companies like NABARD, HDFC, Tata Capital; government issuers include the RBI and state governments.

Junk Bond

Also: High-Yield Bond, Sub-Investment Grade Bond

Junk bonds (also called high-yield bonds) are rated below BBB- (sub-investment grade). They compensate investors for elevated credit risk with higher coupons. In India, they're mostly unrated or rated BB and lower; they play a role in diversified portfolios but should be sized cautiously.

Liquidity

Liquidity measures how quickly you can exit a position at a fair price. G-secs and large corporate bonds are relatively liquid; smaller NCDs may trade rarely and require selling at a discount. Lower liquidity means wider bid-ask spreads and higher realised costs — factor this into buy-and-sell decisions.

Listed (NSE/BSE)

Listed bonds are admitted for trading on a stock exchange, providing price transparency and some liquidity via the exchange's debt segment. Listing also confers tax benefits — listed bonds qualify for lower LTCG rates versus unlisted. Most OBPP-traded bonds are listed on NSE or BSE.

LTCG on Bonds

Also: Long-Term Capital Gains

Long-term capital gains on listed bonds (held over 12 months) are taxed at 12.5% without indexation, per the Finance Act 2024. Short-term gains are taxed at slab rate. For unlisted bonds, the long-term threshold is 24 months with different treatment. Check current rules at filing time.

Maturity Date

Maturity date is the scheduled date on which the issuer repays the face value to bondholders. After this date, the bond no longer pays coupons and holds no claim on the issuer. Tenure (time to maturity) is a key driver of interest-rate sensitivity.

Modified Duration

Modified duration adjusts Macaulay duration by the current yield to give a direct estimate of price sensitivity: ΔPrice ≈ −(Modified Duration) × ΔYield × Price. It is the version most commonly quoted by portfolio analytics systems.

NCD

Also: Non-Convertible Debenture, Debenture

Non-Convertible Debentures (NCDs) are debt instruments issued by Indian corporates, offering a fixed interest rate for a fixed tenure. Unlike convertible debentures, they cannot be converted into equity. NCDs may be secured (backed by assets) or unsecured.

OBPP

Also: Online Bond Platform Provider

Online Bond Platform Providers (OBPPs) are SEBI-regulated entities that allow retail investors to buy and sell corporate bonds online. Examples include GoldenPi, WintWealth, IndiaBonds, Jiraaf, and BondsKart. Different OBPPs may list the same bond at slightly different prices.

Put Option

A put option gives the bondholder the right to sell the bond back to the issuer at a pre-agreed price on specified put dates. This provides downside protection if rates rise or the issuer's credit weakens. Bonds with put options usually trade at slightly lower yields.

Rating Agency

Rating agencies issue opinions on how likely an issuer is to meet its debt obligations. The four SEBI-registered rating agencies in India are CRISIL, ICRA, CARE, and India Ratings. Ratings influence pricing, regulatory capital requirements, and who can invest in a bond.

Secured vs Unsecured

A secured bond is backed by specific collateral (like receivables or property) that bondholders can claim if the issuer defaults. An unsecured bond relies only on the issuer's general creditworthiness. Secured bonds typically offer lower yields for the added protection.

Settlement

Also: T+1, T+2

Settlement is when the trade is finalised: the buyer pays, the seller delivers the bond. Indian exchanges now use T+1 (one working day after trade date) for most instruments. Settlement date is what determines coupon entitlement and accrued interest calculations.

Tax-Free Bond

Tax-free bonds — issued by entities like NHAI, IRFC, PFC, REC, and HUDCO — pay interest that is completely exempt from income tax under Section 10(15)(iv)(h). No new issues have come since 2016, but existing bonds trade actively in the secondary market and are attractive for investors in the top tax bracket.

Taxable Bond

Most corporate bonds are taxable: coupon interest is added to your annual income and taxed at your slab rate. Capital gains on sale follow the standard equity-vs-debt rules depending on holding period. Factor in post-tax yield when comparing taxable bonds to tax-free alternatives.

TDS

Also: Tax Deducted at Source

For listed corporate bonds, TDS is typically not deducted on interest payments. For unlisted instruments, TDS at 10% applies when annual interest exceeds ₹5,000. Any TDS deducted is reflected in Form 26AS and adjusted against your total tax liability at filing time.

YTC

Also: Yield to Call

Yield to Call (YTC) is the annualised return on a callable bond assuming the issuer redeems it at the earliest call date. For callable bonds trading above par, YTC is usually lower than YTM and more relevant — the issuer has an incentive to refinance early.

YTM

Also: Yield to Maturity

Yield to Maturity (YTM) is the total annualised return on a bond assuming you hold it until maturity and reinvest every coupon at the same rate. It accounts for the purchase price, coupon payments, face value at maturity, and time remaining. YTM differs from the coupon rate whenever a bond trades above or below face value.

Zero Coupon Bond

Also: Deep Discount Bond

Zero coupon bonds (also called deep discount bonds) don't pay periodic coupons. Instead, you buy them at a discount to face value and receive the full face value at maturity. The difference is your return. Their price is highly sensitive to interest rate changes because all the cash flow sits at the end.