Fixed-Income Trading

Fixed-income trading can help you earn scheduled interest, but the value of a bond can still move up or down before maturity.

• You can trade Government Securities, Treasury Bills, State Development Loans, and corporate bonds.
• Government Securities have no domestic credit risk, but their market prices can still fall.
• Corporate bonds can carry credit, liquidity, and interest-rate risk.
• Retail investors can access Government Securities through RBI Retail Direct and NSE goBID.
• NSE’s retail debt platform allows a market lot of 1 bond for publicly issued debt securities.
• Higher bond yield can also mean higher risk.
• Before buying, check the issuer, maturity, yield, credit quality, liquidity, and when you will need your money.

Yes, you can earn interest from a bond, but you can also lose money if you sell it before maturity at a lower price.

Suppose Ramesh is a 41-year-old electrician in Nagpur.

He earns ₹45,000 per month and has ₹1 lakh that he does not need for the next 5 years.

He buys a bond with these terms:

If the issuer makes all promised payments and Ramesh holds the bond until maturity, he receives the scheduled interest and principal as per the bond terms.

Now suppose Ramesh suddenly needs the money after 2 years.

He decides to sell the bond.

If newer bonds are offering 8%, buyers may not want to pay the full original price for his older 7% bond.

He may have to sell it below ₹1 lakh.

So, “fixed income” means the payment terms may be fixed. It does not mean the market value always stays fixed.

Retail investors can access different types of debt securities.

What are Treasury Bills?

Treasury Bills, or T-Bills, are short-term Government of India securities.

They generally do not pay a separate coupon.

You buy them at a discount and receive the face value at maturity.

What are Government Securities?

Government Securities, or G-Secs, are bonds issued by the Central Government.

They carry no domestic credit risk because repayment is backed by the Government of India.

But their market prices can still fall before maturity.

What are State Development Loans?

State Development Loans, or SDLs, are debt securities issued by state governments.

Retail investors can access them through channels such as RBI Retail Direct.

What are corporate bonds?

Corporate bonds are issued by companies that want to borrow money.

They may offer different interest rates and maturity periods.

Unlike Central Government Securities, they carry the risk that the company may fail to make the promised payments.

How can you buy or sell bonds?

The route depends on what type of bond you want.

How can you buy Government Securities?

Retail investors can use RBI Retail Direct.

Eligible investors generally need:

• A savings bank account in India 
• PAN 
• Valid KYC documents 
• Email address 
• Registered mobile number 

RBI does not charge a fee for opening or maintaining a Retail Direct Gilt account.

Retail investors can also use NSE goBID for Government of India Treasury Bills and dated securities.

How can you trade listed bonds?

Publicly issued debt securities can trade on an exchange platform.

NSE currently specifies a market lot of 1 bond on its retail debt platform.

But one important point remains:

A bond may be listed and still have very few buyers.

So, before buying, check whether you will be able to sell it easily if you need money early.

Bond prices usually move in the opposite direction to market interest rates.

Suppose Suresh, a plumber, buys a bond with:

• Face value: ₹1,000
• Coupon rate: 7%
• Annual interest: ₹70

Later, new similar bonds start offering 8%.

A buyer may think:

“Why should I pay ₹1,000 for a bond paying 7% when a new bond gives 8%?”

So, Suresh’s older bond may need to trade below ₹1,000 to attract a buyer.

Now take the opposite case.

If new similar bonds offer only 6%, Suresh’s 7% bond can look more attractive.

Its market price may rise.

This is called interest-rate risk.

Longer-maturity bonds can generally be more sensitive to interest-rate changes.

Fixed-income trading can help you earn regular income and reduce your dependence on shares. You can choose from government bonds, corporate bonds, and other fixed-income securities based on your needs. However, these investments still carry credit, interest-rate, liquidity, and inflation risks. Before investing, check the maturity period, expected income, and level of risk. You can also spread your money across different investments so that your savings do not depend on only one type of asset.

Start with when you will need your money.

Can the issuer repay you?

For a corporate bond, check the company’s credit quality.

A company with weak finances can have difficulty paying interest or principal.

When will you get your principal back?

Check the maturity date.

Suppose you need ₹2 lakh for your daughter’s college fees after 1 year.

Buying a 7-year bond with that money can create a problem.

If you have to sell after 1 year, the market price may be lower than what you paid.

What return are you really getting?

Do not look only at the coupon rate.

Coupon and yield are not always the same.

Suppose a bond has a face value of ₹1,000 and pays ₹70 a year.

Its coupon rate is 7%.

But if you buy it in the market for ₹950 or ₹1,050, your effective return changes.

The price you pay matters.

Can you sell when you need cash?

This is liquidity risk.

Some bonds have many buyers and sellers.

Others may hardly trade.

If there is no buyer when you need money, you may have to wait or accept a lower price.

What happens if interest rates rise?

The market price of an existing bond can fall when new bonds start offering higher rates.

This matters most when you plan to sell before maturity.

Fixed-income investments can provide scheduled interest, but they are not free from risk. Government Securities remove domestic credit risk, but their market prices can still move. Corporate bonds add credit and liquidity risk. Before buying, check the issuer, maturity, yield, credit quality, liquidity, and whether you can hold the bond until maturity if prices fall. Higher yield should make you check the risk more carefully, not assume you will make more money.