Bonds 101: A Complete Guide to G-Secs, Corporate and Tax-Free Bonds in India
What each type of bond actually is, how retail investors buy them in 2026, and how the interest and gains get taxed — before you put money into any of them.
Bonds sit on the Money n Wealth homepage as a featured product, right alongside Mutual Funds and Insurance. Yet if you search this site for how to actually buy one, there's been nothing — the IPO and OFS coverage here is about equity, not debt. This is the article that was missing: what a bond actually is, the three kinds you're most likely to consider, how retail investors in India buy each one in 2026, and exactly how the interest and any gains get taxed.
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money into any of them. 👤 Money n Wealth Team 📅 September 3, 2026 🕐 ~11 min read Bonds sit on the Money n Wealth homepage as a featured product, right alongside Mutual Funds and Insurance. Yet if you search this site for how to actually buy one, there's been nothing — the IPO and OFS coverage here is about equity, not debt. This is the article that was missing: what a bond actually is, the three kinds you're most likely to consider, how retail investors in India buy each one in 2026, and exactly how the interest and any gains get taxed. What "Investing in a Bond" Actually Means A bond is a loan, structured as a tradeable security. You (the investor) lend money to an issuer — the Government of India, a state government, a public sector company, or a private corporation — for a fixed period. In return, the issuer promises two things: regular interest (the coupon ), and your original amount back (the face value , usually ₹100 or ₹1,000 per unit) at maturity . Three terms come up constantly and are worth locking in before anything else: Coupon rate — the fixed interest the bond pays, set when it's issued, calculated on face value. Yield — your actual return if you buy the bond today, which moves inversely to its market price. Buy below face value and your yield is higher than the coupon; buy above face value (common for older, sought-after bonds) and your yield is lower than the coupon. Maturity — the date the issuer repays the face value. Bonds maturing sooner are generally less sensitive to interest-rate moves than long-dated ones. Every bond carries some version of two risks: credit risk (the issuer might not pay you back) and interest-rate risk (if rates rise after you buy, your fixed-coupon bond becomes less attractive and its resale price falls). How much of each risk you're taking depends entirely on which of the following three you choose. The Three Bond Types, Side by Side Before the detail, here's how Government Securities, Corporate Bonds and Tax-Free Bonds compare on the things that actually decide which one fits you. Bond type Issuer / credit risk Typical yield (2026) Liquidity Minimum Government Securities (G-Secs) Government of India — effectively zero default risk ~6.8%–7.5% Good via secondary market; RBI Retail Direct is buy-and-hold friendly ₹10,000 face value Corporate Bonds PSU to private company — varies by credit rating ~7.5%–10.5%+ depending on rating Thinner; varies a lot by issue Often ₹1,000–₹10,000 on bond platforms Tax-Free Bonds PSU-issued (legacy tranches) — very low default risk ~5.5%–7% coupon, but tax-free Secondary market only; no new tranches recently Varies; usually ₹1,000 face value Yields are indicative as of September 2026 and move with RBI policy and market conditions — check live levels before investing. Government Securities: Buying Them Through RBI Retail Direct G-Secs are the closest thing to a risk-free rupee investment that exists — backed directly by the Government of India. Since RBI Retail Direct launched, retail investors can buy them without a broker in between: What you can buy: G-Secs (5 to 40-year maturities), Treasury Bills (91/182/364-day), State Development Loans (SDLs, issued by individual states, typically 20–40 bps higher yield than G-Secs), and Sovereign Gold Bonds when issued. How it works: Open a free Retail Direct Gilt (RDG) account with PAN, Aadhaar-linked KYC and a bank account — no demat account needed. Place a non-competitive bid in the primary auction (allotment guaranteed at the auction-determined yield, within the retail quota), or buy/sell existing securities on the secondary market (NDS-OM) with T+1 settlement. Cost: No account opening fee, no annual charge, no brokerage on primary auctions — one of the few genuinely zero-cost ways to invest in India. Minimum: ₹10,000 face value, in multiples of ₹10,000 thereafter. The trade-off isn't risk — it's return. G-Secs exist to be the safest asset in your portfolio, not the highest-yielding one. They make sense for money you genuinely cannot afford to see fall in value, and for laddering maturities against known future expenses. Corporate Bonds: More Yield, More Homework Corporate bonds pay more than G-Secs because you're taking on issuer-specific credit risk. That gap is exactly what a credit rating (AAA down through D, from CRISIL, ICRA, CARE or India Ratings) is supposed to price in — AAA-rated PSU and blue-chip corporate paper trades close to G-Sec yields plus a modest spread, while lower-rated paper can offer noticeably more yield in exchange for real default risk. Retail access to corporate bonds has genuinely improved in recent years, mainly through two routes: SEBI-registered Online Bond Platform Providers (OBPPs) — regulated platforms that list corporate bonds (and some G-Secs and SDLs) for retail investors, often in smaller minimums than the exchange lot size, with the bond held in your existing demat account. Stock exchanges directly — many listed corporate bonds trade on the BSE and NSE and can be bought like a share, through any broker, provided you have a demat account. Three checks matter more than the headline yield: the credit rating and its outlook (a rating on "negative watch" is a flag), secured vs unsecured (secured bonds have a specific charge over assets if the issuer defaults), and liquidity — a high-yield bond you can't sell before maturity without a steep discount isn't as attractive as it looks on paper. Tax-Free Bonds: A Legacy Instrument Still Worth Knowing Tax-free bonds were issued by public sector entities — NHAI, REC, PFC, HUDCO, IIFCL and similar — mainly in tranches between 2012 and 2016, to fund infrastructure. No major new tax-free bond tranches have been issued in recent years ; what exists today trades in the secondary market on the exchanges. Their one distinguishing feature is powerful: interest is fully exempt from income tax under Section 10 of the Income Tax Act, for every investor regardless of tax slab. That's why older tax-free bonds — carrying coupons of roughly 5.5%–7.5%, set when they were issued — often trade above face value today: for someone in the 30% bracket, a tax-free 7% yield is worth more than it looks next to a taxable alternative (more on the exact math in the calculator below). They're bought and sold through a demat account via any stockbroker, exactly like a listed share. The two things to watch: check the yield-to-maturity at the current market price (not the old coupon rate, which is only relevant to face value), and remember liquidity thins out as fewer of these bonds remain outstanding. How Bonds Are Taxed in FY 2026-27 Component Tax treatment Interest (G-Secs, corporate bonds) Added to income, taxed at your slab rate under "Income from Other Sources" Interest (tax-free bonds) Fully exempt under Section 10 — not added to taxable income at all Capital gains — listed bonds, held ≤12 months Short-term; taxed at your slab rate Capital gains — listed bonds, held >12 months Long-term; 12.5% flat, no indexation (effective from 23 July 2024) Capital gains — unlisted bonds, held ≤24 months Short-term; taxed at your slab rate Capital gains — unlisted bonds, held >24 months Long-term; 12.5% flat, no indexation TDS on interest 10% under Section 193 above the applicable threshold (20% if PAN isn't linked); Floating Rate Savings Bonds are deducted only once interest crosses ₹10,000 in a year Rules current at time of writing and subject to Finance Act changes — confirm current provisions before investing, and remember TDS deducted is a credit against your final tax liability, not an extra cost. A quick mention: Section 54EC capital gain bonds If you've sold property and are sitting on a long-term capital gain, Section 54EC bonds (issued by REC, PFC, IRFC and NHAI) let you invest the gain — up to ₹50 lakh in a financial year — within six months, to claim exemption from that capital gains tax. They carry a 5-year lock-in, aren't transferable, and the interest they pay is taxable. They're a tax-planning tool for a specific situation, not a general-purpose bond investment. Choose G-Secs If / Choose Corporate Bonds If / Choose Tax-Free Bonds If Lean toward G-Secs if: Capital safety matters more to you than yield You're laddering maturities against a known future goal You want zero platform cost and don't need a demat account Lean toward corporate bonds if: You're comfortable assessing (or relying on) credit ratings You want meaningfully more yield than G-Secs and can hold to maturity You already have a demat account and broker relationship Lean toward tax-free bonds if: You're in the 20% or 30% tax bracket, where the exemption is worth the most You can accept thinner secondary-market liquidity You want steady, fully tax-exempt income rather than growth In every case: Match the bond's maturity to when you'll actually need the money Never chase yield on an unfamiliar issuer without checking the credit rating first Calculator: What Would a Taxable Bond Need to Yield to Match a Tax-Free One? Tax-free bond yield (%) Your income tax slab 5% 20% 30% Calculate Equivalent taxable-bond yield you'd need 9.29% Formula: tax-free yield ÷ (1 − slab rate). Ignores cess and surcharge for simplicity — use it to compare, not to file a return. Frequently Asked Questions Are Government Securities completely risk-free? They carry effectively zero credit risk, since the Government of India backs them. They still carry interest-rate risk — if you sell before maturity when rates have risen, the market price can be below what you paid. Holding to maturity removes that risk entirely. Can NRIs use RBI Retail Direct? The platform is built around resident Indian investors with a PAN and Aadhaar-linked bank account. NRI eligibility and process differ — check the current RBI Retail Direct terms or speak with your advisor before assuming access. Are new tax-free bonds being issued right now? No major new tranches have come to market in recent years. What's available is what already exists in the secondary market from PSU issuances made mostly between 2012 and 2016. How liquid are corporate bonds if I need to exit early? It varies a great deal by issue. Bonds from large, frequently traded issuers on the exchanges or major bond platforms are reasonably liquid; smaller or older issues can be thin, sometimes forcing a discount to sell quickly. Check recent trading volumes before you buy, not after. Is bond interest taxed differently under the new tax regime? No — interest from G-Secs and corporate bonds is added to your total income and taxed at whichever slab rate applies to you, under either the old or new regime. Tax-free bond interest stays exempt under Section 10 in both regimes. What's the difference between coupon rate and yield? Coupon rate is fixed at issuance and calculated on face value. Yield is your actual return based on what you paid — if you buy below face value your yield is higher than the coupon, and if you buy above face value (common for sought-after tax-free bonds) your yield is lower than the coupon. Want help deciding how much of your portfolio should sit in bonds versus equity and mutual funds, given your own goals and tax bracket? Talk to an advisor (https://www.moneynwealth.in/contact) . Regulatory Information: Money n Wealth (Predics Fintech Services Pvt Ltd) is regulated under SEBI's framework as an AMFI-registered Mutual Fund Distributor (ARN-121995) and an APMI-registered Portfolio Manager Distributor (APRN-07444). Bond investments are subject to credit and interest-rate risk; yields and tax treatment mentioned here are indicative as of the publish date and subject to change. This article is for general informational and educational purposes only, does not constitute personalized investment or tax advice, and should not be the sole basis for any financial decision — please consult your advisor before investing. 📤 Share this article Share on X (https://twitter.com/intent/tweet?text=Bonds%20101%3A%20A%20Complete%20Guide%20to%20G-Secs%2C%20Corporate%20and%20Tax-Free%20Bonds%20in%20India) Share on LinkedIn (https://www.linkedin.com/sharing/share-offsite/?url=https://www.moneynwealth.in/insights/bonds-101-india) Share on WhatsApp (https://wa.me/?text=Bonds%20101%3A%20A%20Complete%20Guide%20to%20G-Secs%2C%20Corporate%20and%20Tax-Free%20Bonds%20in%20India%20https://www.moneynwealth.in/insights/bonds-101-india) Not sure where bonds fit? A quick portfolio review shows how much of your money should sit in bonds versus equity, given your goals. Start Free Portfolio Review (https://www.moneynwealth.in/contact) On this page What a bond actually is (#) Government Securities (#) Corporate bonds (#) Tax-free bonds (#) How bonds are taxed (#) Which one fits you (#) Related Reading Debt Management Fixed Deposit vs Debt Mutual Funds: Which Gives Better Post-Tax Returns Now? (https://www.moneynwealth.in/insights/fixed-deposit-vs-debt-mutual-funds-which-gives-better-post-tax-returns-now) Tax Planning Tax Planning in India (FY 2026-27): Old vs New Regime and How to Save Tax (https://www.moneynwealth.in/insights/tax-planning-guide-india) Mutual Fund PPF vs ELSS vs SIP: Which Tax-Saving Investment Actually Wins in 2026? (https://www.moneynwealth.in/insights/ppf-vs-elss-vs-sip-which-tax-saving-investment-actually-wins-in-2026) Debt Management Debt Management in India: How to Get Out of Debt Faster (2026 Guide) (https://www.moneynwealth.in/insights/debt-management-guide-india) Back to All Articles (https://www.moneynwealth.in/insights) Planning Tools (https://www.moneynwealth.in/tools) Taxation (https://www.moneynwealth.in/legal/taxation) © 2026 Predics Fintech Services Pvt Ltd. AMFI ARN-121995 · APMI APRN-07444. function calcB1(){ const y = parseFloat(document.getElementById('b1-yield').value)||0; const slab = parseFloat(document.getElementById('b1-slab').value)||30; const eq = y / (1 - slab/100); document.getElementById('b1-out').textContent = eq.toFixed(2) + '%'; }
