One bond, then a ladder

1Did anyone try it in India?

In June 2021 a reader on TradingQnA came across an idea and wanted to know whether it worked here:

it is building a bond ladder. does any one have experience of building ? did any one try it in the Indian scenario ?

Ratna_sai_kosuru, TradingQnA, 2nd Jun 2021

The first reply was not hopeful:

in India we have limited bonds to play with…our bond market access to retail is limited with low liquidity

CoolBird, TradingQnA, 3rd Jun 2021

Both were reasonable. A bond ladder is a simple idea: own several bonds that mature one after another, so money comes back to you at regular steps instead of all at once. And Indian bonds can be hard to buy in small amounts at a fair price. But the doors are wider than they look: government bonds have traded on the exchange in ₹100 units since December 2018, and bond apps now sell company bonds in small sizes (chapter 7).

This chapter builds a ladder from scratch, in 2 halves. The first half is about buying one bond well: choosing it, reading the order window, and getting a thin bond without overpaying. The second half puts several bonds together: how much to put with one company, how a ladder works, which bonds make good rungs, and a worked 5 rung ladder with real yields.

A ladder is several bonds maturing one after another. To build one, first learn to buy a single bond well; then stack them.

Half 1 · Buying one bond well

2Choosing the bond

Before the price, pick the right bond. Two bonds from the same issuer with almost the same maturity can be very different to buy, because one trades every day and the other once a month. Chapter 8 listed the checks; in short:

• When did it last trade? A last price from weeks ago is history, not a price.
• How big is the issue? Bigger issues have more holders, and more holders means more people willing to trade.
• Is there a price on both sides? A buyer and a seller both showing prices, close together, is the best sign that you will get a fair deal.
• For government bonds, is it the benchmark or a recent issue? These trade far more than older ones (chapter 8).

If 2 bonds fit your plan and one passes these checks better, buy that one, even if its yield is a little lower. A slightly lower yield that you actually get is worth more than a higher one you overpay for.

Pick a bond that traded recently, from a large issue, with prices showing on both sides. A little less yield is a fair price for a bond you can buy, and later sell, cleanly.

3At the order window

Limit orders only. On Kite you cannot place a market order for a bond, a government security, a state bond or a Treasury bill. You must name your price. This is Zerodha's rule, not the exchange's: NSE itself accepts both kinds of order for government bonds. Zerodha blocks market orders for all debt, because in a thin market a market order can fill at whatever silly price the cheapest seller happens to be asking.

The other rules of the window, set by the exchange:

• Price band. For government bonds, state bonds and Treasury bills on NSE, an order more than 5% away from the reference price is not accepted.
• Tick. Prices move in steps of 1 paisa.
• Dirty price. The price includes the interest built up since the last coupon (chapter 4), so it rises a little every day even when nothing else changes.
• Settlement. Bonds bought on the exchange arrive in your demat the next working day, T+1.

The smallest amount you can buy depends on the bond:

Partial fills. The exchange matches orders by price first and then by time. If you bid for 50 bonds and only 20 are on offer at your price, you get 20 now and the other 30 wait in the queue. A normal order on Kite lasts for the day; anything still unfilled at the close is cancelled, and you can place it again the next morning.

Name your price with a limit order, stay within the 5% band, expect the dirty price, and know the smallest lot for your bond. A partly filled order is normal in bonds, not a mistake.

4Buying a thin bond without overpaying

In a thin bond, the price on offer can be far from what the bond is worth. A reader once faced this with a bond fund on the exchange:

The bid ask spread is more than 1re, I am looking to purchase for more than 5L. Whats the best way to do it?

Sai_Krishnan, TradingQnA, 29th Mar 2022

The answer for any thin bond is patience, in 3 steps:

1. Work out a fair price first. Use the bond's recent trades, the yields of similar bonds, or the fair value that bond apps and fund houses publish (chapter 8). The seller's ask is not a fair price just because it is the only one on the screen.
2. Rest a bid near that fair price and let sellers come to you. A bid sitting in the queue is visible to every seller who opens the bond.
3. Buy in parts over days. If only some of your order fills, place the rest the next day. Never chase a lone ask far above the last trade; it is often a seller fishing for a careless buyer.

Buying in parts changes how you should measure your return. Each part has its own price and its own date, so the single yield on the screen no longer describes your holding. The honest measure is the XIRR of all your payments and receipts together (chapter 3). Your broker's average price is a good guide to what you paid, but not to what you will earn.

In a thin bond, decide a fair price first, rest a bid near it, and fill over days. Measure the result by XIRR across all the parts, not by any one screen yield.

Half 2 · From one bond to a ladder

5How much in one company

Once you own more than one bond, the first rule is about who, not what. Two bonds from the same company are one risk, not two. If the company fails, both fail together (chapter 13). So count your exposure by company, not by bond.

No regulator sets a limit for individuals. Mutual funds do have one, and it is a useful yardstick. Since 29th Nov 2022, SEBI lets an ordinary debt fund put at most:

• 10% of its money in AAA rated bonds of any one company,
• 8% in AA rated bonds of one company,
• 6% in bonds rated A or below.

SEBI's reasons apply to you too: even AAA companies have failed, risk rises quickly as ratings fall, and lower rated bonds become hard to sell exactly when markets are nervous. A fund with a team of credit analysts keeps each company small. An individual reading this chapter on a phone has every reason to do the same.

Government bonds are different. The Government of India can print the rupees it owes you (chapter 1), so the risk in a central government ladder is price movement and timing, not losing your money to a failure. A ladder made only of central government securities can hold all its money with one issuer. State bonds add a small extra risk of their own, so spread those across states.

Count your risk by company, not by bond. Keep each company small, smaller still as the rating falls; a fund's 10%, 8% and 6% limits are a good starting point. Central government securities can carry a whole ladder.

6How a ladder works

Picture a ladder lying on the ground with 5 rungs. Each rung is a bond, and each matures 1 year after the one before: 1 year, 2 years, 3, 4 and 5. Every year, the nearest rung matures and pays you back. You then have a choice: spend the money, or buy a new 5 year bond and put it at the far end. Either way, the ladder keeps its shape, and something matures every single year.

What a ladder protects you from. If all your money were in one bond maturing on one day, you would have to reinvest all of it on that day, at whatever rates happen to be on offer. If rates were low that week, bad luck. A ladder spreads that decision over 5 years, so you are never betting everything on one day's rates. It also means some money is always about to come back, so you rarely need to sell a bond early in a thin market (chapter 8).

What it does not protect you from. The prices of the longer rungs still move with interest rates (chapter 5). If you hold every rung to maturity, those moves do not matter; you get the face value back regardless. They only matter if you sell early.

There are 2 other shapes worth knowing by name. A bullet puts everything into bonds maturing around one date, which suits one known need, like a child's college fee in 2031. A barbell puts half in very short bonds and half in very long ones, with nothing in the middle, for people who want some money soon and are happy to hold the rest for long. A ladder sits in between, and suits most people who want steady money and fewer decisions.

A ladder is rungs maturing one by one. It protects you from reinvesting everything at one bad moment and from forced sales; it does not stop prices moving, which only matters if you sell early.

7Choosing the rungs

Almost any bond that matures in the right year can be a rung. They come with different minimums and different strengths:

A target maturity fund is a fund that holds only bonds maturing by its own end date, so it behaves like one big bond with many issuers inside. Bharat Bond ETFs maturing in April 2030, 2031, 2032 and 2033 trade on the exchange today. One surprise from their history: the 2023 and 2025 series did not simply hand money back at the end; their investors were moved into later series. Read what happens at maturity before you count a fund as a rung.

Government bonds have one more advantage as rungs: no tax is deducted at source on their interest. Once one company's interest to you, across all its listed bonds, passes ₹10,000 in a year, 10% tax is deducted on the whole amount before it reaches you, which you then adjust when you file your return (the tax page explains it).

Treasury bills raise a question that comes up often:

Is it possible to invest less than 10K , If we are buying via Kite ?

sandeep_cs, TradingQnA, 9th Aug 2026

No. Treasury bills trade in lots of 100 units of ₹100 on the exchange, so ₹10,000 is the smallest step, the same as in RBI's auction. And a Treasury bill ladder can only reach 1 year, because no Treasury bill is longer. For rungs further out, central government bonds are the cheapest way in, at ₹100 a unit.

Central government bonds are the easiest rungs: almost any year, ₹100 a unit, no tax deducted. Treasury bills cover the first year; state and company bonds add yield; target maturity funds give a ready made rung if you check how they end.

8A 5 rung ladder, built

Here is a ladder of about ₹1 lakh of face value in each rung, built only from government securities, using yields from RBI's trading platform on 19th Oct 2026:

3 things stand out. The yields rise with the first rungs and then level off around 7.2%, which is normal: lenders usually want a little more for waiting longer, though beyond a few years the extra can be small (chapter 5). The 9.20% bond costs more than its face value, because its coupon is well above today's yields, so the same yield can come with very different coupons (chapter 3). And rung 2 had no trade that morning, only a buyer's and a seller's price, so its yield is the middle of those; on the day, you would bid near it and wait (section 4).

The 4 bond rungs together pay about ₹30,000 a year in coupons, in instalments through the year, and the Treasury bill pays its gain at maturity. Then, every year, one rung comes back and you decide: spend it, or buy a new 5 year bond for the far end.

RememberThese yields are one day's. By the time you read this they will have moved, which is exactly why the ladder buys one rung a year instead of everything at once. The table at the end says where to find today's figures.

5 government securities maturing a year apart make a ladder from about ₹5 lakh, with coupons twice a year and one rung returning every year. Yields change daily; the shape is what matters.

9What to do with the coupons

Coupons arrive in your bank account, not your demat. Left there, they earn savings account interest, and your real return slides below the yield you bought at, because that yield assumed every coupon would be put back to work at the same rate (chapter 3). One reader's plan for a large income portfolio drew exactly that warning:

this plan ignores re-investment risk.

Akash_Shah, TradingQnA, 27th Jul 2023

There are 3 simple homes for coupons:

• Spend them, if the ladder is meant to pay for living costs. Then the shortfall is not a problem; it is the plan.
• Buy more of a rung. Because central government bonds trade in ₹100 units, even a ₹3,000 coupon can buy about 30 more units of the next rung you need.
• Park them in a liquid fund until the next rung is due, then buy that rung with the total.

Coupons do not reinvest themselves. Spend them on purpose, add them to a rung in ₹100 units, or park them until the next rung; leaving them idle quietly lowers your return.

10Your ladder in 8 steps

1. Write down when you need money: every year, or on particular dates.
2. Choose the shape: a ladder for steady money, a bullet for one date, a barbell if you want some soon and the rest far out.
3. Choose the rungs: government securities as the backbone; company bonds only if you accept the credit risk.
4. Size each company small, smaller as the rating falls (section 5).
5. Pick liquid bonds for each rung: recent trades, big issues, prices on both sides (section 2).
6. Buy with limit orders, near a fair price, in parts if the bond is thin (sections 3 and 4).
7. Give the coupons a job (section 9).
8. Each year, roll the rung that matures: spend it or buy a new far rung.

To Ratna_sai_kosuru: yes, it works in India, and it is easier now than in 2021. Central government bonds trade on the exchange in ₹100 units, for almost every year over the next decade and many beyond, so a ladder of government securities can be built from a few thousand rupees per rung. Company bonds and target maturity funds can add rungs with more yield, with the credit and maturity checks above.

To sandeep_cs: a Treasury bill ladder starts at ₹10,000 a rung and only reaches 1 year. For smaller steps or longer rungs, use central government bonds.

Know your dates, choose the shape, build mostly from government securities, keep each company small, buy patiently, give coupons a job, and roll one rung a year.

Where to find today's figures