Bonds on Zerodha
Zerodha provides access to listed bonds and Non-Convertible Debentures (NCDs) through the debt segment of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Investors can buy and sell these instruments through Kite in the same manner as equity shares, with settlement occurring in the demat account. This segment is distinct from Government Securities (G-Secs) and T-Bills, which trade through a separate RBI-managed mechanism.
Types of bonds accessible on Zerodha
Non-Convertible Debentures (NCDs)
NCDs are debt instruments issued by corporations that cannot be converted into equity shares. Listed NCDs trade on BSE and NSE’s debt segment. Examples include NCDs issued by Muthoot Finance, Shriram Transport Finance, Tata Capital, and government-backed entities such as NHAI and IRFC.
NCDs are rated by credit rating agencies (CRISIL, ICRA, CARE, India Ratings) and offer fixed coupon payments (quarterly, half-yearly, or annual) with a maturity ranging from 18 months to 10 years.
Listed bonds (PSU and private)
Public Sector Undertakings (PSUs) and large private companies issue bonds that are listed on NSE and BSE. These include bonds from entities such as NTPC, Power Finance Corporation, REC, HUDCO, and NHAI. Some of these may qualify as tax-free bonds if issued under specific government notifications.
Perpetual bonds (Additional Tier 1 bonds)
Banks issue AT1 (Additional Tier 1) bonds classified as hybrid debt instruments under Basel III capital regulations. These are perpetual (no fixed maturity) and carry contingent write-down risk. SEBI and RBI have issued regulatory clarifications restricting AT1 bond distribution to high-net-worth investors due to their complexity and write-down features.
How bonds trade on Zerodha
Listed bonds trade on NSE’s Wholesale Debt Market (WDM) and Retail Debt Market (RDM) or on BSE’s BOND segment. Through Kite, retail investors primarily access the RDM segment where bonds trade in smaller denominations (face value of Rs 1,000 per unit).
Bond prices fluctuate inversely with interest rates and based on credit quality. Price quotation is typically as a percentage of face value (e.g., 101.50 means Rs 1,015 for a Rs 1,000 face value bond). Accrued interest is added to the traded price to arrive at the total settlement amount.
Accrued interest (dirty price vs clean price)
The clean price of a bond excludes accrued interest. The dirty price (settlement price) includes the interest accrued since the last coupon payment date. On Kite, bond prices are quoted as dirty prices for exchange-traded debt. The accrued interest component is relevant for tax calculations.
Settlement
Bond trades settle on T+2 (unlike equity which is T+1). Settlement is in demat form for bond units held at CDSL. Zerodha’s demat account holds bonds in the same way as equity shares; bond units appear as separate ISINs in the demat statement.
Brokerage and charges
| Charge | Amount |
|---|---|
| Brokerage | Rs 20 or 0.03% per executed order (whichever is lower) |
| Exchange transaction charge | BSE: 0.00001% of turnover; NSE: varies |
| GST | 18% on brokerage + transaction charges |
| SEBI regulatory fee | Rs 10 per crore |
| Stamp duty | 0.0001% on buy side |
STT does not apply to listed bonds (bonds are not classified as securities attracting STT under the Finance Act, 2004).
Bond platforms and Zerodha’s approach
Zerodha does not operate a primary bond issuance platform. Primary NCD issues (where the company is raising fresh capital) require investors to apply through BSE or NSE’s electronic book mechanism or through designated banks. Secondary market trading (buying already-listed bonds from other investors) is available through Kite.
Several fintech platforms (e.g., BondsIndia, Wint Wealth, Grip Invest) specialise in bond distribution and offer curated bond listings with credit analysis. These platforms route secondary transactions through exchange connectivity. Zerodha’s bond offerings are limited to what is available in the exchange’s debt market, which may have lower liquidity than equity markets.
Liquidity considerations
Listed bond markets in India are significantly less liquid than equity markets. Most listed bonds trade infrequently; bid-ask spreads can be 0.5% to 2% of face value, which erodes returns on short holding periods. Investors planning to sell before maturity should assess the secondary market liquidity of the specific bond before investing.
Tax treatment
Interest income
Coupon payments on bonds are taxed as interest income under the head “Income from Other Sources” and are subject to income tax at the investor’s applicable slab rate. TDS at 10% is deducted on interest exceeding Rs 5,000 per year per bond issuer (for non-resident bond holders, TDS rates differ).
Capital gains on sale
If a bond is sold before maturity on the exchange:
- Short-term capital gains (STCG): If held less than 36 months; taxed at slab rate.
- Long-term capital gains (LTCG): If held 36 months or more; taxed at 20% with indexation benefit under Section 112.
Note that the LTCG holding period for listed bonds is 36 months (not 12 months as for equity). Unlisted bonds have a different tax treatment (24 months for LTCG).
Difference from tax-free bonds
Certain government-notified bonds (e.g., bonds issued by NHAI, REC, IRFC, PFC under specific notifications) qualify as tax-free bonds, where the coupon interest is exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act. Regular listed corporate bonds do not qualify for this exemption.
References
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
- SEBI Circular SEBI/HO/DDHS/DDHS-RACPOD2/P/CIR/2023/99, Retail debt market framework.
- Income Tax Act, 1961, Section 10(15), Section 112.
- RBI Basel III Guidelines on AT1 bonds.
- NSE, Retail Debt Market (RDM) segment operational guidelines.