How Bond IPOs Work in India: A Complete Guide for Investors

India’s public bond market is on a fast growth trajectory, with funds raised through bond IPOs nearly doubling in FY24. 

According to SEBI data, companies raised approximately ₹19,167 crore through public bond issues in FY24, up from ₹9,220 crore in FY23—a remarkable 107% increase. This surge highlights the rising appeal of bond IPOs, as companies explore alternatives to bank loans, and investors, including retail and high-net-worth individuals, seek stable, fixed-income investments.

With SEBI oversight, bond IPOs offer transparency and allow investors to diversify portfolios with income-generating assets. Given India’s robust economic outlook and increasing capital needs for infrastructure and corporate growth, bond IPOs are becoming a popular choice for those looking to add stability to their investments. If you are familiar with stock IPOs, bond IPOs might pique your interest as they allow investment in a company’s debt with typically lower risk and predictable returns.

Let us dive in to explore how bond IPOs work and why they might be the right fit for you.

Why Companies Issue Bonds via IPOs

Understanding why companies issue bonds via IPOs can help you make informed investment decisions. Here are the key reasons:

1. Capital for Growth Without Dilution: Bond IPOs allow companies to raise funds for expansion without issuing more shares, keeping control with existing shareholders.
2. Long-Term Project Funding: Bonds provide fixed-term financing suited for large projects, aligning well with long timelines.
3. Lower Borrowing Costs: Bonds can be a cost-effective alternative to bank loans, often with more favourable terms.
4. Expanding Investor Base: Bonds attract a wider range of investors, including those seeking stable, fixed income.
5. Locking in Low Interest Rates: Companies can secure favourable rates during low-interest periods, reducing long-term borrowing costs.

The Process of a Bond IPO

The bond IPO process in India follows specific steps and regulatory approvals to ensure transparency and investor security. Here is a precise breakdown:

Approval by SEBI: The issuing company must secure approval from the Securities and Exchange Board of India (SEBI), which evaluates the company’s financial strength, project purpose, and repayment capability.

Credit Rating Assignment: A credit rating agency like CRISIL, ICRA, or CARE assigns a rating to assess the bond’s risk level. Higher ratings typically indicate lower risk, helping investors gauge the investment’s safety.

Public Announcement: Once approved, the company releases details of the bond IPO, including the interest rate, bond tenure, credit rating, and minimum investment amount. This announcement is made via the company’s website, stock exchanges, and sometimes financial news outlets.

Application Period: Investors have a limited window, usually 3–5 days, to apply. During this time, investors can review the bond’s specifics, compare ratings, and decide if it aligns with their goals.

Allotment and Listing: Bonds are allotted based on subscription levels. If the issue is oversubscribed, partial allotments may occur. Once allotted, bonds are credited to investors’ demat accounts and may be listed on exchanges, allowing for secondary trading.

How to Invest in a Bond IPO

Investing in a bond IPO in India involves a few straightforward steps. Here is exactly how to do it:

Choose a Platform: Select an investment platform or broker that offers access to bond IPOs. Most online brokerages, stockbrokers, and banks provide options for participating in bond IPOs.

Review Bond Terms: Carefully examine details such as the interest rate, maturity period, credit rating, and minimum investment. Understanding these factors will help you assess the bond’s risk and suitability for your portfolio.

Apply During the IPO Window: Bond IPOs open for a limited period, usually 3–5 days. Submit your application through your broker or platform within this window. Payment is made through ASBA (Application Supported by Blocked Amount), which blocks the funds in your bank account until allotment.

Allotment and Holding: Bonds are allotted based on demand and, if oversubscribed, investors may receive fewer units than applied for. Allotted bonds are transferred to your demat account.

Through the Vested INR Bonds platform, you can invest in bond IPOs directly and also access bonds in the secondary market. This provides a convenient way to build a stable, income-generating portfolio even if you miss the initial IPO window.

Benefits of Investing in Bond IPOs

Bond IPOs offer several potential benefits for investors, especially those looking for predictable income and lower risk than equities:

• Regular Income: Bonds typically offer fixed interest payments at regular intervals, making them ideal for income-seeking investors.
• Lower Risk: Compared to stock IPOs, bond IPOs are generally lower-risk, especially if they have high credit ratings.
• Portfolio Diversification: Bonds can add balance to a portfolio by offering stability, especially during stock market volatility.
• Transparency and Regulation: SEBI regulates bond IPOs, adding a layer of security and transparency for investors.

Risks and Challenges of Bond IPOs

Knowing risks allows investors to weigh bond IPOs accurately within their overall investment strategy, considering both potential returns and downsides. Here are a few things to consider:

• Interest Rate Risk: If interest rates rise, the value of existing bonds may fall, as newer bonds may offer higher returns.
• Credit Risk: Companies may face financial difficulties that could impact their ability to make timely interest payments or repay the principal.
• Liquidity Issues: While some bonds are listed on exchanges, not all have high trading volumes. Investors may face difficulty selling bonds in the secondary market.
• Inflation Risk: The fixed interest from bonds may not keep pace with inflation, potentially eroding purchasing power over time.

Comparing Bond IPOs with Stock IPOs

Here is a side-by-side comparison of bond IPOs and stock IPOs based on key factors:

Feature	Bond IPOs	Stock IPOs
Who Can Apply	Open to all investors with a demat account, including retail investors, HNIs, NRIs, and institutions	Open to all investors with a demat account, with appeal mainly to those seeking potential ownership and growth
Minimum Investment	Often lower, some starting at ₹10,000	Typically based on “lots” (a set number of shares, with 1 lot amount is often around ₹15,000)
Allotment Process	Generally first-come, first-served; oversubscription may result in partial allotment	Often uses a lottery system for retail investors if oversubscribed; institutional allotments based on bid size
Payment Process	ASBA (Application Supported by Blocked Amount) – funds blocked during application and debited upon allotment	Similar ASBA process – funds blocked during application and debited if shares are allotted
Checking Application Status	Trackable through the registrar’s website (e.g., Link Intime, KFintech) using application ID, PAN, or demat details	Trackable on registrar’s or exchange website using application ID, PAN, or demat details

 

Investing in Bond IPOs Made Easy

Investing in a bond IPO can be a great way to diversify your portfolio and lock in stable returns, especially in a growing market like India’s. With just a few steps—from selecting a platform to applying during the IPO window—you can add bonds directly to your investments. 

But remember, if you happen to miss applying during the bond IPO period, platforms like Vested provide opportunities for INR Bonds in the secondary market, allowing you to buy bonds even after the IPO phase. This way, you still get a chance to invest in high-quality corporate bonds at your convenience.

Whether you are aiming for predictable income or looking to balance out a stock-heavy portfolio, bond IPOs offer an accessible path toward financial growth and stability.