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What is Bond Redemption? Types, Tax, and Tips for Indian Investors

Bond redemption is an important concept to understand if you’re considering bond investments, which are a popular way to earn fixed returns while keeping your capital safe. Simply put, a bond is like a loan you give to a company or government, and in return, they pay you interest, called the coupon rate, regularly until the bond reaches its maturity date. That maturity date is when they pay back the original amount you invested, known as the principal.

Now, bond redemption refers to how and when you get that principal back. It’s not always as straightforward as waiting until maturity; there are different methods of debt redemption that can come into play, like early redemption or put options. Knowing these options can help you plan better and make smarter investment decisions, so you’re not caught off guard when the time comes to redeem your bond.

What is Bond Redemption?

Bond redemption is when the issuer repays the bond’s principal, usually at maturity. For example, with callable bonds, a company might repay early if interest rates drop, saving money on interest. With puttable bonds, investors can sell the bond back if rates rise, avoiding lower returns. Convertible bonds let investors switch to company shares if the stock performs well. Understanding these methods of debt redemption helps you plan for different scenarios, manage cash flow, and make smarter investment decisions.

Types of Bond Redemption (With Examples)

1. Maturity Redemption

This is the most common method. The bondholder receives the full face value of the bond on a pre-decided maturity date, along with periodic coupon payments throughout the bond’s tenure. Imagine you buy a ₹1,000 bond with a 10-year term and an 8% coupon rate. Every year, you’ll receive ₹80 as interest, providing a steady income. At the end of 10 years, you get your original ₹1,000 back. This shows how bond redemption works and helps you plan your finances with predictable returns.

2. Call Redemption

Callable bonds let issuers repay the bond before maturity, usually when interest rates drop, so they can refinance more cheaply. For example, if a company issued a bond at 7% but rates fall to 5%, it might call the bond early, paying investors a call price slightly above face value. This means investors get their money back sooner but may need to reinvest at lower rates. 

3. Put Redemption

Puttable bonds give investors the right to sell the bond back to the issuer before maturity. Imagine interest rates rise after you buy a bond at 6%; with a put option, you can redeem early and reinvest at higher rates. This flexibility protects investors in changing markets. Our filters help you find puttable bonds that match your return goals and liquidity needs.

4. Conversion Redemption

Convertible bonds allow you to convert your bond into company shares at a predetermined price. If the company’s stock performs well, this can boost your returns beyond fixed interest. Although these bonds usually offer lower coupon rates, they combine debt safety with potential equity gains.

5. Staggered Payments Redemption

Instead of repaying the full principal at once, issuers may pay it back in installments over time. This approach suits large projects where revenue comes in phases. For investors, it means steady cash flow rather than a lump sum. We provide bond ladders and average life data to help you understand these schedules and plan accordingly.

6. Sovereign Gold Bond (SGB) Redemption

SGBs can be redeemed after five years on specific interest payment dates. The redemption price is based on the average gold price over the previous three business days, as reported by the India Bullion and Jewellers Association. We offer timely alerts and step-by-step guidance so investors don’t miss RBI’s redemption deadlines.

What Affects Bond Redemption?

Bond redemption can be influenced by many factors:

  • Interest Rate Movements: Falling rates may lead issuers to call bonds early. Rising rates may encourage investors to redeem puttable bonds.
  • Credit Rating Changes: If a company’s credit improves, it may refinance its debt and redeem existing bonds.
  • Tax Law Changes: New tax rules may make some bonds less attractive, pushing early redemptions.

Tax Implications of Redemption

When you redeem a bond, you may realise either a capital gain or a capital loss, depending on the price you paid versus the redemption value. For instance, if you bought a bond for ₹40,000 and redeemed it at ₹50,000, you earn a ₹10,000 capital gain, which is taxable as per applicable laws. Conversely, if you purchased a bond at ₹65,000 but redeemed it for ₹60,000, you incur a ₹5,000 loss, which can be used to offset gains from other investments, reducing your tax burden.

We encourage consulting a tax advisor for personalised advice, but also offer tools and calculators to help with basic tax planning. Understanding these tax implications can help you make smarter investment decisions and plan your finances better.

Why Choose Bondbazaar for Your Bond Investments?

Bondbazaar is India’s most advanced and investor-friendly bond investment platform, helping individuals across major Indian cities build smarter, more secure portfolios.

Here’s what you get:

  • Real-time access to bond markets via NSE/BSE.
  • More than 10,000 bonds across categories.
  • Simple onboarding and fully digital processes.
  • Dedicated Relationship Manager support.

  • No fees—no account opening, no maintenance, no hidden costs.

  • Investments are held in Demat form, with principal and interest credited directly to your account.

Whether you're planning for retirement, income stability, or portfolio diversification, Bondbazaar simplifies bond investing while maintaining 100% transparency and regulatory compliance.

Conclusion

Understanding bond redemption is key to making informed decisions with different types of bonds. Whether your bond matures at the end of its term or includes features like call or put options, knowing when and how you’ll get your money back helps you build a strong, reliable portfolio. Bondbazaar offers access to a wide range of bonds with fixed returns, high liquidity, and expert support to guide you through your investment journey. This combination makes investing in bonds easier and more rewarding, giving you confidence and flexibility to grow your wealth through debt instruments.

Disclaimer: Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks, including delay and/or default in payment. Read all the offer-related documents carefully before investing.

Frequently Asked Questions

Q1. What does bond redemption mean?

Bond redemption is when the issuer repays the principal amount of a bond, either at maturity or earlier, based on specific terms like call or put options.

Q2. Are all bonds redeemed at maturity?

No. Some bonds, like callable or puttable bonds, can be redeemed before maturity by the issuer or investor respectively.

Q3. Is bond redemption taxable in India?

Yes, gains from bond redemption are taxable under capital gains or income tax rules, depending on how long you held the bond and your income slab.

Q4. How can I track bond redemption dates?

Platforms like Bondbazaar offer reminders, portfolio tracking, and redemption alerts to help investors stay informed.

Q5. Can I redeem Sovereign Gold Bonds before 8 years?

Yes, SGBs offer early redemption options after the 5th year on interest payout dates, based on RBI’s gold price formula.