Listed vs Unlisted Bonds in India: Key Differences, Risks, and Returns

Imagine you are the head of a growing business, evaluating two different suppliers for a crucial component. One supplier operates through a well-known marketplace, offering clear pricing and easy transactions. The other works privately, promising better rates but requiring more due diligence. This scenario mirrors the choice investors face between listed and unlisted bonds in the bond market.

If you’re considering how to invest in bonds in India, understanding the differences between listed and unlisted bonds is key to aligning your investments with your financial goals and risk appetite. Listed vs unlisted bonds each have their own features, benefits, and risks that can impact your investment strategy. 

What are Listed Bonds in India?

Listed bonds are bonds that are traded on a stock exchange, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). These bonds are easy to buy and sell because they are available on public platforms. Just as products on a marketplace are easily accessible and come with detailed information, listed bonds offer investors a transparent and regulated way to participate in the bond market.

Key Features:

• Traded on Stock Exchanges: Listed bonds are bought and sold openly, making transactions straightforward and transparent.
• Regulated by SEBI: The Securities and Exchange Board of India (SEBI) sets strict rules to ensure investor protection and transparency.
• Public Information: Prices, yields, and other details are updated in real time and accessible to all.

What are Unlisted Bonds in India?

Unlisted bonds are not traded on any stock exchange. They are sold privately, often through over-the-counter (OTC) methods or bond investment platforms.

Over-the-counter (OTC): A way of buying and selling that happens directly between two people, instead of using an exchange.

Key Features:

• Private Transactions: Buying and selling happen directly between parties, not on an exchange.
• Accessible via Platforms: Once reserved for large institutions or high-net-worth individuals, unlisted bonds are now available to retail investors through Bondbazaar.
• Fewer Regulations: These bonds aren’t bound by the same strict listing requirements, offering more flexibility but also demanding greater investor diligence.

Listed vs Unlisted Bonds: Comparison Table

Let’s look at the main differences between listed and unlisted bonds:

1. Where They Are Traded

• Listed Bonds: Imagine a company listing its shares on a public stock exchange to attract a wide range of investors. Listed bonds are similarly available on exchanges like NSE or BSE, making them easy to access.
• Unlisted Bonds: Think of a private placement, where a business raises funds directly from select investors. Unlisted bonds are sold privately and aren’t available on public exchanges.

2. Liquidity

Liquidity is how quickly you can convert an asset into cash without affecting its price.

• Listed Bonds: Like a business selling products in a bustling marketplace, listed bonds can be sold quickly thanks to a large pool of buyers and sellers.
• Unlisted Bonds: Selling unlisted bonds is more like negotiating a private business deal; it may take longer to find a buyer. However, digital platforms such as Bondbazaar are changing this by enabling real-time trading for both listed and unlisted bonds.

3. Transparency

Transparency refers to how openly information is shared with stakeholders.

• Listed Bonds: Comparable to a public company publishing quarterly reports, listed bonds provide up-to-date information on prices, yields, and trading volumes.
• Unlisted Bonds: Similar to private firms that disclose less information, unlisted bonds offer limited public data, making it essential for investors to conduct their own research.

4. Minimum Investment

• Listed Bonds: Just as some businesses offer products in small, affordable units, listed bonds allow investments starting as low as ₹100 or ₹1,000.
• Unlisted Bonds: Historically, unlisted bonds required larger commitments—often ₹1 lakh or more. However, platforms like Bondbazaar are making smaller investments possible, opening doors for more investors.

5. Yield or Return

Yield is the income or interest earned from a bond.

• Listed Bonds: These typically offer moderate, stable returns, reflecting their lower risk profile.
• Unlisted Bonds: These bonds often promise higher yields, much like a startup offering higher returns to early backers. However, this comes with increased risk.

6. Regulation

• Listed Bonds: Heavily regulated by SEBI, listed bonds require issuers to meet strict disclosure and compliance standards.
• Unlisted Bonds: With fewer regulatory hurdles, issuers have more flexibility, but investors must be more vigilant.

7. Costs for the Issuing Company

• Listed Bonds: These bonds involve higher costs for compliance and visibility.
• Unlisted Bonds: Issuing unlisted bonds is more cost-effective for companies, allowing them to offer better rates to investors.

8. Credit Risk

Credit risk is the chance that the issuer may fail to pay interest or principal on time.

• Listed Bonds: Due to regulatory checks and public scrutiny, listed bonds generally carry lower credit risk.
• Unlisted Bonds: Investing in unlisted bonds is akin to extending credit to a lesser-known business partner, potentially offering higher returns, but also more risk. Always review credit ratings and company financials before investing.

Understanding the key features and trade-offs helps investors choose wisely between listed vs unlisted bonds, balancing liquidity, risk, and returns to suit their investment goals.

How to Buy Listed and Unlisted Bonds in India

If you’re wondering how to invest in bonds in India, think of it like planning a structured business expansion. You need a clear process to make smart decisions and achieve your financial goals. Here’s a simple, step-by-step approach to get started in the bond market:

1. Define Your Goals: Are you seeking safety, regular income, or higher returns?
2. Choose Your Bond Type: Opt for listed bonds for liquidity and security; select unlisted bonds for potentially higher yields.
3. Pick a Trusted Platform: Bondbazaar offers a wide selection (over 10,000 bonds) and enables you to buy and sell bonds—both listed and unlisted—at the click of a button, with zero account opening or brokerage fees.
4. Check Credit Ratings: Look for bonds rated by agencies like ICRA, CRISIL, or CARE.
5. Understand Tax Implications: Earnings from bonds are taxable, with rules varying between listed and unlisted options.

Checklist Before Buying Unlisted Bonds in India

When evaluating unlisted bonds, approach it like a business due diligence process:

• Review Financials: Study the issuer’s financial history.
• Purpose of Fundraising: Understand why the company is raising capital.
• Collateral: Check if the bond is secured by assets.
• Maturity and Exit Options: Know when you can redeem your investment.
• Credit Ratings: Prefer bonds with credible ratings.

If in doubt, consult a financial advisor for a thorough risk assessment.

Conclusion 

Choosing between listed and unlisted bonds is like selecting the right business partner—each comes with its own set of advantages and risks. Listed bonds offer transparency, liquidity, and regulatory safeguards, making them a safest investment option for conservative investors. Unlisted bonds, with their higher yields and flexible terms, suit those willing to take on more risk for greater returns.

Bondbazaar makes it easier than ever to explore the best corporate bond funds, compare thousands of options, and invest confidently, backed by expert guidance and real-time trading, all with zero extra charges. As you explore the bond market, align your choices with your financial goals, risk tolerance, and investment horizon for the best results.