Best Corporate Bonds in India

What is Corporate Bonds?

Corporate bonds, a well-known type of debt investment with particular difficulties and hazards, have been a mainstay of the financial markets for decades. The possibility of large profits from profitable businesses makes these bonds more alluring in emerging nations. By 2023, a large number of Indian businesses will be selling bonds to the general market. But it's important to know if these relationships are all secure. And how many bonds have yields that are higher than average?

One type of debt instrument that investors use to lend money to businesses is corporate bonds. In return, the business promises to pay interest on the amount periodically and usually agrees to pay back the principal when the bond matures.

Top 10 Corporate Bonds

Some of the best-performing corporate bonds in terms of yield and rating have been selected by us. As of 2023, these are the top corporate bonds to purchase:

Overview of Corporate Bonds

HDB Financial Services Limited - Rated CRISIL AAA, offers a coupon rate of 10.19%, matures on 18-Mar-24, ideal for high-rated, short-term returns.

Tata Capital Financial Services Limited - CRISIL AAA rating, 10.15% coupon, matures on 26-Sep-24, offers stable returns.

Tata Capital Housing Finance Limited - CRISIL AAA, 10.15% coupon rate, 26-Sep-24 maturity, combines reliable yield and top safety.

Bajaj Finance Limited - High-quality CRISIL AAA rating, 10.15% coupon rate, maturing 19-Sep-24, provides low-risk yield.

Kotak Investment Advisors Limited - 10.00% coupon, CRISIL AAA, maturing 26-Sep-25, suitable for long-term stability.

Sundaram Finance Limited - 9.80% coupon, CRISIL AAA, maturing 10-Nov-24, strong yield in reliable investment.

LIC Housing Finance Limited - CRISIL AAA, 9.80% coupon, maturing 19-Mar-24, short-term high-rated option.

ICICI Securities Primary Dealership Ltd - 9.80% yield, CRISIL AAA rating, maturing 17-May-24, high credibility.

Jamnagar Utilities & Power Private Limited - CRISIL AAA, 9.75% coupon, matures 02-Aug-24, balances yield and security.

India Infradebt Limited - 9.70% coupon, CRISIL AAA, maturing 28-May-24, stable choice for secure short-term returns.

Benefits of Corporate Bonds

Distinct from Stock Investments: Bonds limit returns to principle and interest payments rather than ownership.

Legal Obligation to Pay: Regardless of performance, businesses are required to pay interest and refund the principal.

Priority in Bankruptcy: Bondholders have a greater claim priority over shareholders.

Risk of Default: There is the risk that a business may stop making bond payments.

Creditworthiness Importance: A company’s ability to pay debts on time is crucial for bond investments.

Disadvantages of Corporate Bonds

Credit risk: Potential loss of interest payments or principal if issuer goes out of business.

Interest rate risk: Bond prices fall when interest rates rise.

Low chance of capital appreciation.

Not insured: Unlike CDs, bonds are not insured.

Liquidity risk: Difficulty in selling bonds quickly without a price drop.

Taxation: May be subject to short or long-term capital gains tax.

Taxation on Corporate Bonds

1. The investor's income tax slab rate determines how much interest is taxed on taxable bonds.
2. The holding duration affects the capital gains applied to taxable bonds. Holding bonds for over a year may result in long-term capital gains (LTCG) taxed at 12.5%, while holding for less than a year results in short-term capital gains (STCG) taxed at the relevant tax slab rate.

Who should Invest in Corporate Bonds?

Corporate bonds provide a balance between the lower returns of government bonds and fixed deposits with the higher risk of equities. They appeal to investors seeking modest risk due to their stability and income-generating potential. Corporate bonds often offer greater interest rates than government bonds, making them attractive for diversifying income sources without significant risk.