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What is the story about?
If you’re disappointed by the returns on mutual funds, and by the added securities transaction tax to discourage trading in futures and options (F&O), here’s another option to consider.
Based on the age and risk appetite, one could look at allocating a part of their investment portfolio towards high yielding bonds, which could give you returns of up to 14% a year.
Bonds rated 'BBB' and below, carry enough risk for better profits and more certainty than the F&O market, where nine out of every ten traders seem to lose money.
And, it's a relatively small pool to choose from. 98% of Indian corporate bonds are rated 'AA' or better, according to a December 2025 report from NITI Aayog, a New Delhi-based government think-tank.
Data as of Feb 5 from Jiraaf, an online bond trading platform registered with the Securities and Exchange Board of India (SEBI), shows at least 38 options of bonds rated ‘BBB’, the lowest rating within the investment grade, as per the criteria set by the ratings agency CRISIL.
How risky are BBB-rated bonds?
Any rating less than BBB is not considered to be an investment-grade bond.
Based on a study of data from FY15 to FY25, CRISIL found that less than half a per cent of such bonds default in the first year, 1.27% in the second year, and 2.21% in the third year.
Less than two in ten BBB-rated bonds got downgraded in the same period. Credit ratings matter because they affect the price of the bond.
Tax on gains from investing in bonds
If you hold till maturity, bond interest is taxed as regular income. For a retail investor in the 30% income tax bracket, the headline yield of a BBB-rated bond (e.g., 14%), the net return will shrink to a little less than 10%.
Interest from corporate bonds is classified as ‘Income from Other Sources’.
Tax Rate: It is added to your total income and taxed at your marginal rate (30% plus 4% Health & Education Cess, adding up to 31.2%).
The issuer will deduct 10% TDS (tax deducted at source) upfront if your annual interest exceeds ₹5,000. You must claim this credit while filing your ITR, but you still owe the remaining 21.2% tax.
If a bond is bought and sold in the secondary market at a discount, the profit is taxed differently.
If you sell it within a year, and make a profit of ₹50,000, you will pay a 31.2% tax — assuming you fall in the 30% tax slab. — on the short-term capital gains made on the investment.
If you sell the bonds after a year, a 12.5% long-term capital gains tax would be applicable, just like the profit on your equity or mutual fund investments.
Read more: 360 ONE Mutual Fund to launch its first SIF on February 6
₹10,000 monthly SIP in this mutual fund has grown to ₹4.75 lakh in 3 years
Based on the age and risk appetite, one could look at allocating a part of their investment portfolio towards high yielding bonds, which could give you returns of up to 14% a year.
Bonds rated 'BBB' and below, carry enough risk for better profits and more certainty than the F&O market, where nine out of every ten traders seem to lose money.
And, it's a relatively small pool to choose from. 98% of Indian corporate bonds are rated 'AA' or better, according to a December 2025 report from NITI Aayog, a New Delhi-based government think-tank.
Data as of Feb 5 from Jiraaf, an online bond trading platform registered with the Securities and Exchange Board of India (SEBI), shows at least 38 options of bonds rated ‘BBB’, the lowest rating within the investment grade, as per the criteria set by the ratings agency CRISIL.
How risky are BBB-rated bonds?
Any rating less than BBB is not considered to be an investment-grade bond.
Based on a study of data from FY15 to FY25, CRISIL found that less than half a per cent of such bonds default in the first year, 1.27% in the second year, and 2.21% in the third year.
Less than two in ten BBB-rated bonds got downgraded in the same period. Credit ratings matter because they affect the price of the bond.
Tax on gains from investing in bonds
If you hold till maturity, bond interest is taxed as regular income. For a retail investor in the 30% income tax bracket, the headline yield of a BBB-rated bond (e.g., 14%), the net return will shrink to a little less than 10%.
Interest from corporate bonds is classified as ‘Income from Other Sources’.
Tax Rate: It is added to your total income and taxed at your marginal rate (30% plus 4% Health & Education Cess, adding up to 31.2%).
The issuer will deduct 10% TDS (tax deducted at source) upfront if your annual interest exceeds ₹5,000. You must claim this credit while filing your ITR, but you still owe the remaining 21.2% tax.
| Pre-tax Yield | 14% |
| Tax (31.2% of 14%) | 4.37% |
| Post-tax Net Yield | 9.63% |
If a bond is bought and sold in the secondary market at a discount, the profit is taxed differently.
If you sell it within a year, and make a profit of ₹50,000, you will pay a 31.2% tax — assuming you fall in the 30% tax slab. — on the short-term capital gains made on the investment.
If you sell the bonds after a year, a 12.5% long-term capital gains tax would be applicable, just like the profit on your equity or mutual fund investments.
Read more: 360 ONE Mutual Fund to launch its first SIF on February 6
₹10,000 monthly SIP in this mutual fund has grown to ₹4.75 lakh in 3 years
