The idea of a good investment is one that is relatively safe and stable, gives high and regular returns all while allowing you wriggle room to exit in case of emergencies. Nowadays, conventional forms of savings do not ensure financial security and adequate returns. Therefore, you might go for securities like equities all in the hopes of earning higher returns in acceptance of the higher risks they come with. However, conservative investors with lower tolerance to risks might be reluctant to expose a large part their portfolio to equity investments largely because they are more inclined towards stable and regular returns. Volatility is not everyone’s cup of tea. This is what makes bond investments popular among investors.
Bonds are basically debt instruments that companies, PSUs and even the government use to raise money in the form of debt. They are fixed income-generating instruments and are a great source of passive income. Similar to listed and unlisted equities, Bonds are also classified as listed and unlisted. Here is a detailed difference between them.
Listed bonds are a form of listed debt securities used by companies to raise debt from the public. They are financial instruments that trade on an exchange like the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). These bonds are offered to the public by issue of an offer document. They are regulated by SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
Akin to listed shares, investors can trade in listed bonds on any of the stock exchanges. The convenience that listed bonds offer in terms of trading and liquidity makes them one of the most preferred investment options for investors. Listed Bonds can easily be bought or sold online in just a few clicks. Also as per regulation, the companies that issue these bonds have to provide regular financial statements to the exchange as per listing rules. This help investors track them better as well.
Unlisted bonds, on the other hand are those forms of debt securities that are not listed in any recognised stock exchange (NSE or BSE). Such bonds are traded through the over-the-counter (OTC) market which means trading happens with the broker or any intermediary. Unlisted bonds on the OTC market can be bought and sold easily with the help of market-makers. Because they are not traded on an exchange, unlisted bonds may be less liquid than listed bonds.
These bonds are not issued to the public at large and are usually invested in by large institutional or private investors only like asset managers, insurance companies, corporate treasuries or High-Networth Individuals (HNIs). Also the financial disclosure norms here are minimal which sometimes may not be good for investors as they have lesser information on progress and health of issuing companies. They also do not come under SEBI’s purview for regulation.
Having understood the meaning of listed and unlisted securities, here is a comparison between the two categories of bonds to understand their key differences.
| Basis | Listed Bonds | Unlisted Bonds |
| Meaning | Listed bonds are debt securities that are listed on a recognised stock exchange. | Unlisted bonds are debt securities that are not listed on any recognised stock exchange. |
| Ownership | Listed bonds are owned by public at large as they are publicly traded. | Large institutional and private investors usually subscribe and hold these bonds. |
| Liquidity | As listed bonds are freely tradable on stock exchanges, they are highly liquid. | Unlisted bonds can be traded through the Over-The-Counter (OTC) market only. Hence, they are less liquid than listed bonds. |
| Applicable Law / Regulation | – SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 – Companies Act, 2013 | Companies Act, 2013 |
| Regulatory Conditions | Complex and strict regulatory standards have been set by SEBI to avoid any irregularities. | Unlisted bonds are not subject to such strict standards as in the case of listed bonds. |
| Issue Process | The issuing process of listed bonds is long and requires various disclosures and approvals. | The issuing process of unlisted bonds is not as complex as in the case of listed bonds. |
| Taxation | TDS is applicable @10% on interest for listed Bonds. LTCG at 10% without indexation for holding bonds more than 12 months. | TDS is applicable @10% on interest. LTCG at 10% without indexation for holding bonds more than 36 months. |
Being financially informed is a key factor for profitable investing. Having understood the key differences between listed vs. unlisted bonds, investors are expected to conduct their due diligence before making an investment decision. A firm foundation with some pertinent market knowledge is essential to calculate the risks involved in investments. Identifying risk capacity and investment goals are an integral factor that investors would consider prior to investing.
If you want to invest in bonds in order to ensure fixed returns in the form of interest, then IndiaBonds is a one-stop bond investment destination for investors. It allows you to invest in bonds across all sectors including government securities. Further, it regularly provides market insights and learning blogs/videos to keep you updated and help you make informed investment decisions.
When it comes to safety while investing in any of the securities, it depends upon the issuer. The same applies in the case of a bond investment. However, as listed bonds are traded in a highly regulated environment with SEBI as the watchdog, they are comparatively safer.
For unlisted bonds, SEBI is not the regulator, and the number of regulations and disclosure requirements are few. Thus, you need to thoroughly research the company and its future prospects along with the purpose for issuing the bonds and how the issuer plans to utilize the funds prior to investing in unlisted bonds.
It depends upon your investment goals, risk appetite and investment horizon. If investing in unlisted bonds align with these 3 factors, you can invest in these bonds. Otherwise, listed bonds preferably make a great alternative for investments for investors who are new to bond investments.
Disclaimer: Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.
