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/learn/corporate-bonds-ncd-credit-ratingBonds & Fixed IncomeFixed Yield7 min read
Corporate Bonds, NCDs & Credit Rating Analysis (AAA to D)
How companies raise debt, Non-Convertible Debentures (NCDs), reading CRISIL/ICRA ratings, and navigating credit risk.
Core Takeaways for Indian Investors
- ✓Corporate Bonds & NCDs are debt instruments issued by private and public corporations to fund operations or expansion.
- ✓They typically offer 1.5% to 4% higher interest rates than Bank FDs or Government G-Secs to compensate for credit risk.
- ✓Credit ratings (AAA, AA, A, BBB down to D) reflect default risk; retail investors should rarely step below AA+ or AAA ratings.
- ✓Secured NCDs are backed by company assets, whereas Unsecured NCDs rank behind other creditors in liquidation.
#1How Credit Ratings Work in India (CRISIL, ICRA, CARE)
Credit Rating Agencies evaluate a corporate borrower’s balance sheet, leverage, cash flows, and repayment history before assigning a rating.
💡 THINK OF IT THIS WAY
During the 2018 IL&FS crisis, an AAA-rated infrastructure giant was downgraded to D (default) within weeks when its liquidity dried up. This serves as a reminder: Never put all your debt capital into a single corporate bond. Diversify!
▸AAA: Highest degree of safety, lowest credit risk (e.g., Tata, HDFC, L&T, NTPC, PFC).
▸AA+ / AA / AA-: High degree of safety, very low credit risk.
▸A+ / A / A-: Adequate degree of safety, susceptible to adverse economic shocks.
▸BBB to C: Moderate to high risk; speculative grade.
▸D: In default or expected to default shortly.
#2Secured vs Unsecured NCDs: What Happens in Liquidation?
An NCD (Non-Convertible Debenture) cannot be converted into equity shares.
A **Secured NCD** creates a specific legal charge against designated company assets (e.g. real estate or loan book). If the company goes bust, those assets are auctioned by the Debenture Trustee to pay you back first.
An **Unsecured NCD** has no specific collateral; in bankruptcy, unsecured bondholders rank lower in the claims waterfall.
How to Invest: Step-by-Step Execution Routes
India Practical GuideRetail participation in Indian corporate bonds has exploded thanks to SEBI-regulated Online Bond Platform Providers (OBPPs) and reduction of minimum face value to ₹10,000.
SEBI-Registered Online Bond Platforms (OBPPs)
Demat RequiredMin Investment: ₹10,000 to ₹1,00,000
Ideal For: Investors seeking curated corporate bond listings with transparent credit ratings, YTMs, and cash flow schedules.
Steps to Invest:
1.Sign up on authorized platforms like GoldenPi, Wint Wealth, Grip Invest, or IndiaBonds.
2.Complete online KYC and link your Demat account (NSDL/CDSL).
3.Filter bonds by credit rating (stick to AAA or AA+ rated public sector or leading corporate issuers).
4.Execute purchase via NetBanking or RTGS; bonds are settled directly into your Demat account.
Public NCD Offerings (Primary IPO Market)
Demat RequiredMin Investment: ₹10,000
Ideal For: Investors seeking new retail tranches from well-known NBFCs/Corporates (e.g. Tata Capital, L&T Finance, Muthoot).
Steps to Invest:
1.Apply via your stock broker (Zerodha, Upstox, Groww, ICICI Direct) during public issue dates.
2.Select interest payout frequency: Monthly, Annual, or Cumulative.
3.Approve ASBA UPI mandate on your mobile banking app.
Corporate Bond Mutual Funds (SEBI Categorized)
No Demat NeededMin Investment: ₹500 / month SIP
Ideal For: Investors wanting broad diversification across 40+ AAA-rated companies without single-company default risk.
Steps to Invest:
1.Choose a "Corporate Bond Fund" scheme from any leading AMC.
2.By SEBI mandate, these funds must invest at least 80% in highest-rated (AAA) corporate papers.
In-Depth Advantages & Disadvantages
Advantages & Strengths
- ✓Higher Yields: Offers 8.5% to 11% yields, beating traditional bank FD returns by a meaningful margin.
- ✓Multiple Payout Frequencies: Many NCDs provide monthly or quarterly interest options, perfect for regular cash flow.
- ✓Asset-Backed Security: Secured NCDs have a legal first charge over plant, machinery, or receivables.
- ✓Tradable on Exchanges: Listed NCDs can be traded on the BSE/NSE bond segments.
Risks & Limitations
- ✗Credit Default Risk: If the issuer goes bankrupt (like the historical IL&FS or DHFL crises), investors can lose principal.
- ✗Illiquid Secondary Trading: Although listed on NSE/BSE, low trading volumes may force deep discounts if you need to exit early.
- ✗Call / Put Risk: Issuers may exercise a "Call Option" to repay the bond early if market rates decline.
- ✗Tax Inefficiency: Interest earned is taxed at your slab rate; TDS is deducted if interest exceeds prescribed thresholds.
Risk & Investor Verdict: Moderate to High Risk depending on credit grade. Stick strictly to AAA/AA+ rated issuers from well-capitalized business houses.
Head-to-Head Comparison
| Criteria | AAA-Rated Corporate Bond | Company Fixed Deposit (Unrated) |
|---|---|---|
| Regulatory Supervision | SEBI regulated with independent Debenture Trustee | Ministry of Corporate Affairs (MCA) rules |
| Collateral Protection | Usually secured by legal charge on physical assets | Unsecured deposit; no collateral backing |
| Tradability | Listed and tradable on NSE/BSE & OBPP portals | Non-tradable; strict lock-in with penalty |
| Typical Yield Spread | 8.0% - 9.5% | 9.5% - 12% (reflecting higher distress risk) |
Knowledge Check: Test Your Understanding
1 QuestionWhich credit rating tier indicates the highest possible degree of safety regarding timely debt servicing in India?