Stocks make headlines, but the world's biggest market is quietly in bonds. A bond is one of the simplest ideas in finance — you lend money and get paid interest. Here's how it works, simply. This is for learning only.
What a bond is
When you buy a bond, you are the lender. The borrower (a government or a company) promises to:
- pay you a fixed interest every year (called the coupon), and
- return your original money (the principal) on a set maturity date.
That predictability is the whole appeal — unlike a share, you know in advance roughly what you'll get.
Who issues bonds
- Government bonds (G-secs): the safest — the government won't default on rupee debt. India's benchmark 10-year G-sec yielded about 7.2% in late 2026.
- PSU bonds: issued by government-owned companies; very safe.
- Corporate bonds: issued by companies; higher interest, higher risk.
A credit rating tells you the risk — AAA is safest, and lower grades pay more to compensate for danger.
The one rule that confuses everyone
Bond prices move opposite to interest rates. If you hold a bond paying 7% and new bonds start paying 8%, yours is less attractive, so its market price falls. If rates drop, your 7% bond becomes more valuable and its price rises. You only need to care about this if you sell before maturity — hold to maturity and you get your full principal back.
How to buy bonds in India
- RBI Retail Direct — buy G-secs directly, no middleman.
- Bond platforms and your broker — for corporate bonds.
- Debt mutual funds — the easy, diversified way (see the debt-fund article).
Where bonds fit
Bonds are the ballast of a portfolio — steady income and lower risk to balance the swings of equity. They rarely make you wealthy, but they keep a portfolio from being a rollercoaster. For how much to hold, see asset allocation.
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