When most people hear the word “IPO,” they think of companies selling their shares to the public. But there’s another kind of IPO that deals with debt, not equity—it’s called a bond IPO.
A bond IPO lets investors buy bonds directly from a company or a government-backed body for the first time. These bonds offer regular interest payments and are returned at the end of a set period. For those who want stable income and lower risk, this is an option worth exploring.
Understanding Bond IPOs
In simple terms, a bond IPO is when a company raises money by offering bonds to the public. The investor lends money to the company, and in return, the company promises to pay interest at regular intervals and repay the amount at the end of the bond term.
These bonds are usually non-convertible debentures (NCDs). That means they can't be converted into shares later. They are fixed-income products that suit people who prefer steady returns over high-risk equity investments.
Why Are Bond IPOs Becoming Popular?
Interest in bonds in India is growing for many reasons. Equity markets can be unpredictable. Bonds, on the other hand, offer more stable income. As a result, many people are now looking at bond IPOs as an alternative.
Bond IPOs allow regular investors to:
Earn fixed interest income
Invest in government-backed or highly rated companies
Diversify their portfolio
Get access to bonds directly, without needing to buy them in the secondary market
How Does a Bond IPO Work?
Here’s a simple breakdown of how bond IPOs work:
Announcement
The company announces that it wants to raise funds through bonds. It shares all the details in a public offer document. This includes the interest rate, bond period, payment schedule, and credit rating.
Open for Subscription
Investors can apply to buy these bonds during a fixed period. You can do this through your bank, broker, or online investment platforms.
Allotment
Once the application window closes, the bonds are distributed. If there are more applications than available bonds, some investors may receive fewer bonds than they applied for.
Listing (Optional)
Some bonds get listed on stock exchanges. This allows investors to sell them before maturity. Others are unlisted and must be held till the end of the term.
Benefits of Investing in a Bond IPO
Fixed Returns: You know in advance how much you will earn.
Low Investment Size: You can start with as little as ₹10,000.
Clarity and Transparency: All terms are shared before you invest.
Tax Options: Some bonds may offer tax savings, depending on the type and section of investment.
Risks You Should Know
Even though bond IPOs are less risky than shares, there are still a few things to consider:
Credit Risk: If the company fails to repay, you could lose money.
Liquidity Risk: If the bond is not listed, you may not be able to sell it before it matures.
Interest Rate Risk: If interest rates rise in the future, your bond may look less attractive.
Are Bond IPOs Right for You?
Bond IPOs are a good choice for people who want safety and regular income. They can also help balance a portfolio that’s too focused on shares. As the bond market in India grows, more such offerings are becoming available to everyday investors.
It’s important to read the bond offer document carefully and understand who is issuing the bond. Credit ratings can give a sense of how safe the investment is. Always match the bond’s maturity and returns with your own financial needs and goals.
Final Thoughts
A bond IPO is a simple and structured way to invest in debt products. It offers steady income and comes with clear terms. For anyone looking to reduce tax, diversify their holdings, or avoid market volatility, bond IPOs are worth considering.
But like any investment, they should be chosen after doing some homework. Look at the issuer’s track record, read the offer document, and check the credit rating before putting in your money.
