Types of Corporate Bonds and Their Associated Risk Levels

I often tell people that the phrase “corporate bond” hides a wide range of products. When I look at indian corporate bonds, I don’t just ask “who is the issuer?”—I also ask “where do I sit in the repayment line, what security backs this, and how easy will it be to exit?” That’s why understanding the types of corporate bonds and their risk levels matters.

1) Secured vs Unsecured: the first risk filter

Secured corporate bonds are backed by specific collateral (like receivables, property, or other assets). If things go wrong, there is a defined security package that may provide recovery support—though the outcome still depends on the value of collateral and enforcement timelines.
Unsecured corporate bonds don’t have dedicated collateral. Here, repayment relies primarily on the issuer’s overall ability and willingness to pay. In plain terms: unsecured structures typically carry higher credit risk than secured ones, all else equal.

2) Senior vs Subordinated: your place in the queue

Another big divider in Indian corporate bonds is seniority.

• Senior bonds / senior secured generally have a higher claim on cash flows and assets.
• Subordinated bonds get paid after senior creditors.
  If an issuer faces stress, subordination can materially increase risk because recoveries, if any, may come later and may be lower.

3) Rated vs Unrated: visibility vs uncertainty

Many investors start with credit ratings because they bring a standardized snapshot of default risk. Rated bonds are assessed by agencies such as CRISIL, ICRA, CARE, or India Ratings. Ratings don’t eliminate risk, but they do add transparency and ongoing surveillance.
Unrated bonds are not automatically “bad,” but I treat them as higher uncertainty instruments because the investor must do deeper work to understand credit quality, covenants, and cash-flow resilience.

4) Listed vs Unlisted: liquidity risk shows up here

I’ve seen people underestimate how important liquidity is. Listed corporate bonds (available on exchanges) may offer better price discovery and potentially easier transfer, but liquidity can still vary widely by issuer and issue size.
Unlisted bonds can be harder to sell quickly or at a fair price. Even if the issuer is sound, liquidity risk can become a practical problem when someone needs funds before maturity.

5) Fixed-rate vs Floating-rate: interest-rate risk trade-offs

Among the types of corporate bonds, the coupon structure changes the risk you feel day-to-day.

• Fixed-rate bonds are more sensitive to changes in market interest rates; prices generally move more when rates move.
• Floating-rate bonds reset periodically to a benchmark, so interest-rate sensitivity may reduce, but you take on benchmark/reset mechanics and sometimes spread risk.

6) Callable / Puttable / Perpetual: embedded features, embedded risks

Some indian corporate bonds come with options:

• Callable bonds allow the issuer to redeem early. This introduces “call risk”—your bond could be taken back when rates fall, exactly when reinvestment options may be less attractive.
• Puttable bonds give the investor an exit option on set dates, which can reduce uncertainty if the put is enforceable and well-documented.
• Perpetual bonds (often issued by financial institutions) have no fixed maturity, making them structurally higher risk and more sensitive to issuer-specific conditions and terms.

7) Convertible vs Non-convertible: equity linkage changes the story

Convertible bonds carry equity-conversion features, so the risk-return profile can be influenced by the company’s stock performance. Non-convertible debentures (NCDs) are more “pure” debt instruments, where the main focus stays on credit strength, structure, and liquidity.

What I focus on before labeling a bond “low” or “high” risk

Beyond category labels, I look at: issuer cash flows, leverage, covenants, security cover, repayment priority, and trading liquidity. That’s the practical way to compare types of corporate bonds without oversimplifying.

If I had to summarize: indian corporate bonds aren’t one product—they’re a menu. The real skill is knowing which risks you’re signing up for, and which ones you’re not.