Understanding Bond IPOs and How to Buy Them?

Investing in bonds is a popular choice for individuals looking for stable returns and lower risk compared to equities. One of the best ways to invest in bonds is through a Bond IPO—a method by which companies or government entities issue bonds to the public for the first time. A Bond IPO allows retail and institutional investors to subscribe to bonds directly at face value before they are listed on stock exchanges.

If you are looking to invest in bonds, understanding how Bond IPOs work and the process of buying them can help you make informed investment decisions.

What Is a Bond IPO?

A Bond IPO (Initial Public Offering) is when a company or government issues bonds to the public for the first time to raise capital. Similar to an equity IPO, where shares are offered to investors, a Bond IPO allows individuals and institutions to purchase bonds directly from the issuer before they become available in the secondary market.

Key Features of a Bond IPO

New Issuance: Bonds are offered to investors for the first time.
Fixed Interest Payments: Investors receive regular coupon (interest) payments at a pre-determined rate.
Lower Risk than Stocks: Bond IPOs are typically less volatile than stock IPOs.
Tradability: Some bond IPOs get listed on stock exchanges, allowing investors to sell before maturity.

Bond IPOs are issued by corporate entities, financial institutions and government bodies for raising funds.

Types of Bond IPOs in India

There are different types of Bond IPOs available for investors in India:

1. Corporate Bond IPOs

• Issued by private or public companies to raise funds.
• May offer higher interest rates than government bonds.
• Risk level depends on the issuer’s credit rating.

2. Government Bond IPOs

• Issued by the Reserve Bank of India (RBI) on behalf of the government.
• Sovereign guarantee ensures safety and zero default risk.
• Includes G-Secs, State Development Loans (SDLs) and Sovereign Gold Bonds (SGBs).

3. NBFC & PSU Bond IPOs

• Issued by Non-Banking Financial Companies (NBFCs) and Public Sector Undertakings (PSUs).
• Example: REC, PFC, NHAI, IRFC issue tax-free or taxable bonds through IPOs.
• Suitable for investors seeking fixed income with moderate risk.

How to Buy a Bond IPO?

Buying a Bond IPO is a simple process and can be done through various platforms. Here’s a step-by-step guide:

Step 1: Check Upcoming Bond IPOs

• Visit financial websites, RBI announcements or bond platforms like SEBI Registered OBPPs
• Look for details such as interest rate (coupon), credit rating, tenure and issue period.

Step 2: Choose a Brokerage or Bond Platform

• You can apply for Bond IPOs through stock brokers like ICICI Direct, Zerodha, HDFC Securities or dedicated bond investment platforms.
• Some banks also provide access to government and corporate bond IPOs.

Step 3: Complete KYC Verification

• To invest in bonds, you need a Demat and trading account.
• Submit PAN, Aadhaar and bank details for KYC compliance.

Step 4: Apply for the Bond IPO

• Select the bond IPO you wish to subscribe to.
• Enter the investment amount (minimum subscription varies per IPO).
• Make payment via net banking, UPI or NEFT/RTGS.

Step 5: Receive Allotment & Holding Confirmation

• If the IPO is oversubscribed, allocation happens on a first-come, first-served basis.
• Once allotted, the bonds are credited to your Demat account.

Step 6: Hold Until Maturity or Sell in Secondary Market

• Investors can hold the bonds until maturity and receive fixed interest payouts.
• Bond IPOs get listed on stock exchanges, allowing investors to sell them before maturity at market price.

Benefits of Investing in a Bond IPO

1. Get Bonds at Face Value

When you invest in bonds through an IPO, you purchase them at the face value (typically ₹1,000 per bond), unlike the secondary market where prices fluctuate.

2. Assured Fixed Returns

Unlike stock IPOs, where returns depend on market movement, Bond IPOs offer fixed interest payouts at regular intervals.

3. Lower Risk than Equities

Bond IPOs are less volatile than equity IPOs, making them ideal for conservative investors.

4. Portfolio Diversification

Including bonds in your portfolio balances risk from equity investments, ensuring stable returns.

5. Liquidity Option

Bond IPOs get listed on NSE/BSE, allowing investors to exit before maturity if needed.

Things to Consider Before Investing in a Bond IPO

1. Credit Rating of the Bond

• AAA-rated bonds are the safest, while AA/A-rated bonds offer higher returns but carry more risk.
• Government bonds have sovereign backing, making them risk-free.

2. Interest Rate (Coupon) vs. Market Rates

• Compare the bond coupon rate with fixed deposit rates and existing bonds in the market.
• If interest rates rise, bond prices may fall in the secondary market.

3. Lock-in Period and Liquidity

• Most bond IPOs have fixed tenures (5-15 years).
• If you need liquidity, check if the bond gets listed for trading.

4. Tax Implications

• Tax-free bonds (e.g., REC, NHAI, PFC) offer tax-free interest.
• Corporate bonds and taxable PSU bonds have interest taxable as per income slab.

5. Investment Horizon

• If you hold till maturity, you get fixed returns with capital protection.
• If trading in the secondary market, price fluctuations may impact returns.

Conclusion

A Bond IPO is an excellent way to invest in bonds directly from the issuer at face value, ensuring stable returns and lower market risk. Whether you’re looking for corporate bonds, government bonds or tax-free PSU bonds, investing in a Bond IPO provides security, diversification and fixed-income benefits.

If you are a conservative investor looking for low-risk investments, consider subscribing to upcoming Bond IPOs through banks, stock exchanges or online bond platforms. Before investing, always assess credit ratings, tenure and interest rates to choose the best bond IPO that aligns with your financial goals.