A corporate bond is a loan you make to a company. The company takes your money now, pays you interest on a fixed schedule, and returns the original amount on a set date. That is the whole mechanism. Yield, duration, spreads, ratings: each of those is just a way of pricing that simple promise more precisely.
In India the same instrument usually gets issued as a non-convertible debenture, or NCD. For a retail investor the terms "corporate bond" and "NCD" describe the same thing. It is a tradable, interest-paying loan to a company that will never convert into shares.
The three numbers that define a bond
Every bond is described by three figures. They are fixed on the day it is issued and do not change afterwards.
Face value is the amount repaid at the end, per bond. Older listed NCDs often use ₹1,000. Many bonds issued through private placement used ₹10 lakh until SEBI cut the minimum face value for new private placements to ₹10,000 in 2022, with further steps since to widen retail access. Every per-bond figure scales from this number, so it is the first thing to check on any specific issue.
Coupon rate is the annual interest, expressed as a percentage of face value. A ₹1,00,000 bond with a 9% coupon pays ₹9,000 a year, usually split into two payments of ₹4,500. The rupee amount stays the same however the bond's market price moves.
Maturity date is when the face value is repaid and the bond ceases to exist. A bond maturing in March 2030 will, on that date, pay its final coupon plus the full face value, and then it is gone.
Why the price moves even though the payments do not
This is the part that surprises first-time buyers. A bond's payments are locked in, but its market price is not. It moves every day, for two reasons.
The first is interest rates. Say you hold a bond paying an 8% coupon and, a year later, comparable new bonds are being issued at 10%. Nobody will buy your 8% bond at full price when they can get 10% elsewhere, so its price has to fall until the discount makes up the difference. If rates fall instead, your above-market bond becomes more valuable and its price rises. Bond prices and interest rates move in opposite directions for this reason, worked through in detail in why bond prices fall when interest rates rise.
The second is the market's view of the issuer. If a company's finances deteriorate, buyers demand a higher yield to hold its debt, which means a lower price. A credit rating downgrade often triggers a visible drop.
Hold to maturity and the issuer pays in full, and none of this touches you. You collect every coupon and get your face value back. The price only matters if you need to sell early.
Coupon rate is not your return
The most common mistake is treating the coupon rate as the return. It is only the return if you buy exactly at face value.
Buy a bond below face value and your return runs higher than the coupon, because you also make a gain when the face value is repaid. Buy above face value and your return runs lower. The figure that captures all of this, every coupon and its timing and the gain or loss on principal, is yield to maturity. It is the only number you should use to compare two bonds. Coupon rate vs yield to maturity works through the arithmetic, and the bond yield calculator does it for a specific bond.
How bonds sit against the alternatives
| What you get | What you give up | |
|---|---|---|
| Bank fixed deposit | DICGC insurance up to ₹5 lakh per bank; break it any time | A lower rate; the insurance caps out at ₹5 lakh |
| Corporate bond / NCD | A higher yield; a claim ahead of shareholders | No insurance; thin liquidity; issuer default risk |
| Equity in the same company | Unlimited upside; a share of growth | Paid last if the company is wound up; dividends optional |
| Debt mutual fund | Diversification and credit monitoring done for you | A management fee; no fixed maturity date |
The trade a bond asks you to make is clear enough. You take one company's credit risk, and worse liquidity than a deposit, in return for a higher yield. FD vs bonds compares the two on equal terms, and what is credit risk in bonds covers the risk you are being paid for.
What can go wrong
- Default. The issuer misses a payment. This is the risk that can cost you principal permanently, and the credit rating exists to signal it. Retail investors in India have lost money on high-coupon NCDs from issuers that looked sound until they were not. A yield far above comparable bonds means the market has priced in a risk you may not have spotted.
- Illiquidity. Most Indian corporate bonds trade rarely. If you need to sell before maturity, you may have to accept a wide discount, or find no buyer at all in your quantity. Treat the maturity date as your real horizon.
- Interest rate moves. Covered above. Only a problem if you sell early.
The practical takeaway
A corporate bond is a straightforward instrument wrapped in intimidating vocabulary. You are lending to a company at a fixed rate for a fixed term. Judge the deal on two questions. Is the yield, not the coupon, high enough to be worth it? And is the issuer likely to still be paying when the bond matures? The credit rating informs the second. The yield calculator answers the first.