15% on a bond? Should I?

1Is it safe to buy?

On 28th Apr 2024 a reader asked the question almost every new bond buyer asks, and more than 10,000 people have opened it since:

Does anyone have experience with A stable or BBB stable grade bonds? Is it safe to buy it or we should only go with AA and AAA bonds?

Abhijit, TradingQnA, 28th Apr 2024

A company bond is a loan to one company. Whether it is safe depends on 2 things: what the company has promised on paper, and how likely it is to keep that promise. The first sits in the bond's offer document. The second is what a credit rating tries to sum up in a few letters.

Think of it like renting out a flat. The rental agreement says what the tenant promises: rent on the 5th, no subletting, a deposit you can keep if things go wrong. The tenant's references tell you how likely they are to keep those promises. You would read both before handing over the keys. A bond is the same, except the tenant is a company and the keys are your money.

What is a credit rating? Before a bank lends you money, it checks your CIBIL score, a number that sums up how reliably you have repaid in the past. A credit rating does the same job for a company's bond: it is a grade, written as letters from AAA at the top to D at the bottom, that sums up how likely the company is to pay interest and principal on time. It is one company's opinion of another, not a guarantee.

Who gives it? A credit rating agency, a firm whose whole business is studying borrowers. Its analysts read the company's accounts, look at its business and its debts, meet its management, and then a committee at the agency decides the grade. The agency keeps watching after that: it reviews the rating at least once a year, and the company must confirm to it every month that it has not missed a payment. In India these agencies are registered with and supervised by SEBI, and section 2 lists them. One thing to know from the start: the company being rated pays the agency for its rating. Section 5 comes back to what that means.

The chapter follows that order. Sections 2 to 4 read the company's promise: where to find it, the 5 things to check first, and the extra promises called covenants. Sections 5 to 8 read the rating: what the letters mean, how to read a rating report, how often each letter has gone wrong, and the new colour code on your screen. Section 9 puts it together to judge what the bond is worth, and section 10 is a 10 minute routine.

To judge a company bond, read 2 things: the company's promise in the offer document, and the agency's opinion in the rating report. Then check whether the yield fits the risk.

Start with the promise.

2Where the paperwork lives

Every listed bond has an offer document. A bond sold to the public, in a public issue (chapter 7), comes with a prospectus. A bond sold privately to institutions comes with a shorter key information document or placement memorandum. SEBI's rulebook for these bonds sets what each must contain.

You can find them in 3 places:

• The exchanges. NSE and BSE keep the documents of bonds listed on them, under each company's filings.
• The company's website, usually under "investors" or "debt".
• Your bond app's page for the bond, which must show key facts about it (chapter 7).

The rating lives somewhere else: on the rating agency's own website. Every rating comes with a published report, called a rating rationale or press release, free to read. The agencies registered with SEBI are:

Search the company's name on the agency's site, open the latest rationale, and check that it covers your bond by its ISIN, listed in the annexure at the end.

The company's promise is in the offer document, on the exchange, the company's site or your bond app. The rating and its full report are on the rating agency's own website.

An offer document can run to hundreds of pages. You need about 5 things from it.

3The 5 things to read first

In 2021, after a finance company called SREI stopped paying its bond holders, one of them asked the most useful question in this chapter:

How to check secured or unsecured NCD

D.K, TradingQnA, 5th Oct 2021

It is the first of 5 things to find, all on the first few pages of a prospectus or in the summary of terms, often called the term sheet:

1. Secured or unsecured. A secured bond has specific assets of the company set aside for its holders, such as loans the company has given or property it owns. An unsecured bond has only the company's word. If things go wrong, secured holders have something to claim; unsecured holders stand in the general crowd.

2. Security cover. For a secured bond, how much the pledged assets are worth against the bonds they back. SEBI requires listed secured bonds to keep cover of at least 100%, and companies must file a security cover certificate every quarter, which you can find in their exchange filings. Torrent Power's certificate for the quarter to 30th Sep 2025, for example, showed cover of 5.18 times: ₹5.18 of assets for every ₹1 of bonds. More cover means more cushion.

3. Where you stand in the queue. If a company fails, it repays in a fixed order (chapter 1). Look for the words senior, meaning near the front, or subordinated, meaning behind other lenders. A subordinated bond pays more because it is paid later, if at all.

4. The covenants, the extra promises in the bond. Section 4 covers them, because they say a lot about the borrower.

5. The debenture trustee. Bond holders are thousands of people who will never meet. The debenture trustee, named in the document, acts for all of them: it watches the security, checks the covenants, and acts if the company misses a payment. Its name tells you who to watch for updates if something goes wrong.

Where to lookThe depositories' bond pages, such as NSDL's India Bond Info, show for each ISIN whether a bond is secured, its rating and its trustee, the quickest answer to D.K's question.

From the offer document, find 5 things: secured or unsecured, the security cover, where you stand in the queue, the covenants, and the trustee who acts for you.

The fourth deserves its own section.

4Covenants, and why riskier bonds have more of them

A covenant is a promise written into the bond beyond "we will pay you back". There are 4 common kinds:

• Money promises. The company keeps certain numbers within limits: its debt no more than a set multiple of its own money, its bad loans below a set level, its capital above a set level.
• Rating promises. If the bond's rating is cut, the coupon goes up, often by a fixed 0.25% for each step down, called a step up. Some bonds go further: a downgrade below a set level lets holders demand their money back early.
• "We won't" promises. The company will not pledge the same assets to someone else, sell its main business, or borrow beyond a limit without the holders' consent.
• Paperwork promises. It will share results on time, pay extra interest for any delay, often 2% a year on top of the coupon, and tell the trustee about anything important.

If a covenant is broken, the trustee can act: raise the coupon, ask for more security, or, in serious cases, call the whole loan back early. Covenants turn a vague promise into one with teeth.

Now look at which bonds have the most of them. A large company rated AAA borrows on a plain promise: a fixed coupon once a year and few extras, because lenders queue up anyway. As the rating falls, the company has to try harder to attract money, especially from retail investors. It adds covenants, so buyers feel protected. It adds rating step ups, so buyers are paid more if things get worse. And it pays interest every month instead of once a year, so the money comes back sooner and the bond feels like a salary.

Each of these is reasonable, but none of them changes the borrower. A long list of promises is a bit like a used car with a 10 page warranty: welcome, but it also tells you the seller expects you to need it. Monthly coupons are convenient; they are not safety. Read a long covenant list as a sign of how much reassurance the company thinks it has to offer.

TrapA rating step up is paid only after the rating has already been cut, which is exactly when the company can least afford it. It is compensation for bad news, not protection from it.

Covenants are extra promises: money limits, rating step ups, "we won't" clauses and paperwork. The riskier the borrower, the more covenants and the more frequent the coupons it offers, because it has to work harder to win your money.

Now the second piece of paper: the rating.

5What the letters mean

Every Indian rating agency uses the same scale, set by SEBI. In SEBI's own words:

A plus or minus fine tunes the grade, so AA− sits just above A+. The agency's name comes first, as in CRISIL AA or [ICRA]A. BBB− and above is called investment grade; below it, speculative grade.

Two more words often follow the letters. An outlook, such as Stable, Positive or Negative, says which way the agency thinks the rating may move over the next 1 to 2 years. A rating watch is louder: something has just happened and the rating may change soon.

SEBI is just as clear about what a rating is not. It is not a recommendation to buy, hold or sell. It says nothing about how easily you can sell the bond (chapter 8), how its price will move with interest rates (chapter 5), or whether it will be repaid early. The company pays the agency for its own rating. And SEBI still asks every investor to do their own "independent and objective analysis". In the same 2024 thread, another reader put the limit plainly:

AFAIK, these ratings are trailing indicators.

cvs, TradingQnA, 29th Apr 2024

AAA to D is SEBI's scale of how safely a company will pay on time. A rating is an opinion on that one question, paid for by the company, not a recommendation and not a view on price or selling.

The letters are the headline. The report behind them is where the reasons are.

6How to read a rating report

Every rating comes with a report the agency must publish, in a format SEBI sets, so they all read alike once you know the order. Take a real one: CRISIL's report on Tata Capital of 22nd Jul 2026, which rated a new ₹10,000 crore bond programme AAA. Here is what each part tells you, top to bottom:

Plate 10.1

Anatomy of a rating report

CRISIL's report on Tata Capital, 22nd Jul 2026, section by section

1. Rating action. A table of everything the agency rates for this company, with the rating and whether it was assigned, reaffirmed, raised or cut. Tata Capital's table shows AAA on its plain bonds and AA+ on its perpetual bonds. Same company, different letters, because the perpetual bonds rank lower in the queue (section 3).

2. Detailed rationale. The one paragraph summary: why this rating. Here, the whole case rests on one fact, that Tata Capital is a key part of the Tata group and Tata Sons, itself rated AAA, is expected to back it.

3. Key rating drivers. The strengths and weaknesses, each with a short heading. Read the headings first. Tata Capital's strengths: strong support from Tata Sons, comfortable capital, a diversified set of lenders, and comfortable asset quality. Its one weakness: a "moderate, albeit improving, earnings profile". The weaknesses are the part to read slowly; that is where the agency says what could go wrong.

4. Liquidity. One word, and then the reasons: Superior, Strong, Adequate, Stretched or Poor. It answers a simple question: does the company have cash to meet the debt falling due in the coming months? Tata Capital's is Superior.

5. Outlook. Stable, Positive or Negative, with a line on why.

6. Rating sensitivity factors. The most useful paragraph in the report. It lists exactly what would make the agency raise or cut the rating. For Tata Capital, the downgrade triggers are: a downgrade of Tata Sons, any change in Tata Sons' support, or bad loans staying above 6%. Copy these down. They are your watchlist, written for you by the people who rate the bond.

7. About the company and key numbers. What the business does, and a small table of total assets, profit, bad loans and debt for the last 3 years.

8. Complexity level, and the annexure. At the end, the agency lists every rated bond by ISIN, with its coupon, maturity, and a complexity level: Simple, Complex or Highly complex. Find your bond's ISIN here to be sure the rating you read is the rating on the bond you own. Tata Capital's plain bonds are marked Simple; its subordinated bonds are marked Complex.

Quick readShort of time? Read the rating action, the weaknesses, the liquidity word and the sensitivity factors. That is 4 places, and about 3 minutes.

A rating report always runs in the same order: the action, the rationale, strengths and weaknesses, liquidity, outlook, what would change the rating, the company, and the bond list by ISIN. The weaknesses and the sensitivity factors matter most.

The report explains one company. The agency's own record shows how its letters have held up across thousands of companies.

7How often each letter has gone wrong

Rating agencies must publish how their ratings have performed. CRISIL's study for 2025-26 counts, for each grade, how many companies defaulted within a year of holding it, averaged over the 10 years to March 2026:

Plate 10.2

How often each grade defaulted within a year

Average 1 year default rate by rating, FY2016 to FY2026. Source: CRISIL Ratings' default study, 2026

The pattern is steep. In CRISIL's record, a one year default by a company it rated AAA or AA was almost unheard of; by A it was rare, about 7 in 10,000; by BBB about 43 in 10,000; and below investment grade it climbs fast, to 2.80% for BB and 8.60% for B. Over 3 years the gaps grow: about 2% for BBB and nearly 10% for BB.

But "0.00%" for AAA is one agency's record, not a law of nature. Every agency publishes its own record, each measured a little differently, and they do not all show zero at the top. Here is the 1 year default rate by grade from each agency's latest study, beside the limit SEBI sets:

The sources: CRISIL 2026, ICRA 2025, India Ratings 2025, CARE 2021, Acuité 2026 and SEBI's 2019 circular with the benchmark table the agencies published with SEBI.

3 things stand out. First, the order holds almost everywhere: the lower the grade, the more defaults. Second, the same letter means slightly different odds at different agencies, so read the agency's name as part of the rating. Acuité's AA has even defaulted more often than its A, a sign that a small pool of companies can bend the numbers. Third, AAA is zero only at some agencies, and the reasons it is not zero elsewhere are the extreme cases below. ICRA says its AAA figure is above zero only because of IL&FS and 4 DHFL linked deals. India Ratings shows 0.0% for AAA only after leaving IL&FS out of its "adjusted" table.

SEBI's own limit is strict at the top. Its 2019 circular says a AAA rating should see zero defaults within 1 and 2 years, and AA zero within 1 year, allowing exceptions only for unexpected legal events. When a top rated company does default, the whole industry has to explain it.

The extreme cases. These are the times a top rating went to default in weeks or months:

• IL&FS, 2018. CARE rated IL&FS's bonds AAA on 9th May 2018, cut them to AA+ on 16th Aug, to BB on 9th Sep, and to D, default, on 17th Sep 2018. India Ratings had them at AAA on 1st Mar 2018 and at D on 18th Sep. The group missed payments on its short term borrowing on 14th Sep and then on its bonds, according to SEBI's order of 26th Dec 2019. SEBI found lapses in how the agencies had watched the company, and on 22nd Sep 2020 it fined ICRA, CARE and India Ratings ₹1 crore each over their IL&FS ratings. IL&FS never took a rating from CRISIL, which is one reason CRISIL's AAA record stayed clean.
• DHFL, 2016 to 2019. In Aug 2016 the housing finance company DHFL sold ₹10,000 crore of bonds to the public, rated AAA by CARE and Brickwork, paying retail investors 9.10% to 9.25%, as reported at the time. It was still AAA until CARE cut it to AA+ in a letter dated 1st Feb 2019. 4 months later, on 4th Jun 2019, it delayed interest on its bonds and was cut to D the next day. On 20th Nov 2019 the RBI removed its board. Because the AAA was cut 4 months before the default, most agencies' tables count DHFL against a lower grade.
• Altico Capital, 2019. In early Sep 2019 this real estate lender was rated AA by Infomerics and AA− by CARE. On 12th Sep it missed a ₹19.97 crore interest payment on a foreign loan. The next day Infomerics cut it to D and CARE cut it to B−, as reported at the time. It is one of the defaults India Ratings leaves out of its adjusted table.

Plate 10.3

How fast top ratings fell

3 Indian defaults, rating by rating, from published rating actions

The honest reading: AAA and AA very rarely fail, and the tables are a fair guide to how often each grade goes wrong across thousands of companies. But a rating is an opinion, the tables are built in ways that can leave the worst cases out, and when a top rating does fail, it can go to default in weeks. That is why the rest of this chapter asks you to read the documents, not just the letters.

Two cautions. First, these are averages across many companies, mostly bank loans rather than bonds; any single company can buck them. Second, the tables leave out companies that stopped sharing information with the agency. Their ratings carry the words ISSUER NOT COOPERATING, or INC, and the agency itself warns that such a rating "may not adequately reflect the credit risk profile". In March 2025 CRISIL had about 12,350 INC companies against about 7,150 that cooperated, so the weakest borrowers are mostly outside the headline numbers.

INC is not the same as default. It means the agency can no longer see inside the company, not that the company has stopped paying. Companies stop cooperating for ordinary reasons too: they move to another agency, they stop paying one agency's yearly fee, or they no longer need the rating at all. CRISIL's 2025 study notes that banks raised the loan size that needs an outside rating, which led many smaller companies to withdraw or simply stop cooperating. SEBI's rules then push an INC rating down hard: once all of a company's ratings have been INC for more than 6 months, they must be cut to speculative grade, below BBB−. So an INC rating often looks worse than the company is.

Indore Municipal Corporation shows how far apart the two can be. Since 2022 Brickwork has rated the city BB− ISSUER NOT COOPERATING, because the city stopped sending it the monthly statement agencies ask for. CARE rates the same city's bonds AA, and CARE's report of 4th Dec 2024 discloses Brickwork's flag. The city kept paying: at 31st Dec 2025 its bond escrow accounts held ₹127.85 crore against ₹61 crore due 7 weeks later, and that first ₹61 crore of its green bonds was repaid on schedule on 20th Feb 2026.

So treat INC as a question, not a verdict. Check what the other agencies say, whether the company is still filing its results and security cover on time, and whether the coupons are being paid.

Default rates rise steeply as the letter falls: very rare for AAA and AA, rare for A, and a real risk below BBB. Very rare is not never: IL&FS went from AAA to default in 2018, and DHFL in under 3 years from its AAA bond sale. INC means the agency cannot see inside the company, not that it has defaulted.

Soon you will not even need to read the letters to see the band.

8The colour on your screen

On 7th Oct 2026 SEBI introduced a Credit Risk-o-Meter, a colour gauge that turns the rating into 6 bands, from green for AAA to red for B+ and below. It must appear on offer documents, in advertisements and on every bond app's web and mobile screens, from 45 days after the circular.

Plate 10.4

The Credit Risk-o-Meter

SEBI's colour gauge for bonds, circular of 7th Oct 2026

3 rules make it more useful than the letters alone. If a bond has more than one rating, the meter shows the lowest. An unsecured bond must say "unsecured" in bold red. And if the company is not cooperating with its agency, the arrow points to INC. Bond apps must update it within 24 hours of a rating change, with no manual override.

The meter is a quicker way to see the rating, not a new opinion. It maps the letters to colours; it does not judge the bond again.

SEBI's Credit Risk-o-Meter shows the lowest rating as 6 colours, from green to red, on every offer document and bond app, flags unsecured bonds in red, and points to INC when a company stops cooperating.

Now put the 2 pieces of paper together, and ask the question that matters for your money.

9What is the bond worth?

A bond's yield has 2 parts. The first is the yield on a government bond of the same length, the price of time (chapter 5). The second is the credit spread, the extra yield the market asks for lending to this company instead of the government. Here is what the market was paying on 14th Oct 2026, from a fund house's daily tracker that uses ICRA Analytics data:

Plate 10.5

What a 3 year bond should yield, by rating

Yields on 14th Oct 2026, from ICRA Analytics data in a fund house's daily tracker

These numbers are a snapshot, not a rule. They are what the market was paying in mid October 2026, and they move every day. A year earlier, the same 3 year government bond yielded 5.90% and an A company bond 8.41%, so both the yields and the extra over the government bond were different. Yields rise and fall with interest rates (chapter 5). The extra for company bonds also changes with the mood of the market: it widens when lenders get nervous, as after a big default, and narrows in calm times when money is plentiful. So never carry these figures in your head. Look up the current ones, from the sources at the end of this chapter, on the day you buy.

Today's numbers give you a yardstick. To judge a bond, find its rating and years left, look up the typical yield for that rating and length, and compare it with the yield the app or exchange is offering.

If the yield is close to the yardstick, the market is pricing the bond like its rating. Fine.

If the yield is well above it, the market thinks the bond is riskier than its letters say, or is charging for something else. Say a 3 year bond rated A is offered at 15% when A bonds of that length yield about 10%. That extra 5% is someone telling you something. Common reasons: the bond is unsecured or subordinated (section 3), the company is small and the bond hard to sell (chapter 8), the company has a lower rating from another agency, or it pays monthly and carries long lists of covenants because it has to try harder to borrow (section 4). Go back to the offer document and the rating report and find which one it is before you buy.

If the yield is below it, you are being paid less than the market rate for that risk. Look elsewhere.

There is a second check, from section 7's numbers. An A rated company has defaulted within 3 years about 0.58% of the time, by CRISIL's count. An A bond pays about 3% a year more than the government, around 9% over 3 years. That extra is far more than the average default loss, which suggests much of the spread pays for other things: that the bond is hard to sell, that you know less than the company does, and that averages hide bad years. This is a reading of the numbers, not a published split, but it explains why spreads exist even for grades that rarely default.

Once you have a fair yield, the price follows from it (chapter 3): the yield you want decides the most you should pay.

A fair yield is the government bond yield for the same length plus the usual spread for the rating. A yield far above that yardstick is a question to answer, not a bargain to grab.

Put it all together and the whole check takes about 10 minutes.

10A 10 minute routine

Before you buy any company bond, run through these, in this order:

A later chapter covers the warning signs in detail: the patterns that have come before past bond failures, and how to spot them early.

To Abhijit: A and BBB bonds can be bought, but they are not the same as AA and AAA. Their default rates are higher, so they must pay more, and the question is whether they pay enough. Read the document, read the report, and check the yield against the yardstick for its rating. If it pays far more than its rating suggests, find out why first.

To D.K: the term sheet, the offer document and NSDL's India Bond Info all say whether an NCD is secured. Check it before you buy, not after.

8 checks, about 10 minutes: rating and colour, place in the queue, security cover, covenants, the rating report, other agencies, the yield against the yardstick, and the trustee.

Where to find today's figures

Every figure in this chapter is dated. This is where to find the current one.