Bond IPO: Meaning, Benefits, How to Invest Online & Allotment Process

9 min read • Updated 6 October 2023
Written by Jatin Pareek
What is a Bond IPO - Here’s what you need to know about Bond I

Investments are the fulcrum of economic growth and development of any nation. It provides the dual benefits of returns to investors and also offers much-needed financing options to various entities. Equity and debt are primarily two types of investments. 

In this regard, there are various ways of making a debt investment, and Initial Public Offerings (IPOs) are one of them. Apart from stock IPOs, the company also issues Bond IPOs in India to raise debt capital for their business operations.

Let’s delve deeper into Bond IPOs in India and know their meaning, benefits, how to invest online, allotment process and payment procedure.

What Are Bond IPOs?

A Bond IPO refers to a process by which companies issue bonds to the general public and raise capital for their business operations. First, we need to understand the concept of an initial public offering (IPO). Whenever a government or private entity issues securities to retail investors for the first time, this process is known as IPO. In simpler words, an IPO is the process of raising capital from the general public. 

Therefore, whenever any company issues bonds (i.e try to raise capital in debt form) to the public in the primary market, it becomes a Bond IPO. All processes related to initial public offering should be in accordance with rules and regulations notified by the Securities and Exchange Board of India. 

However, you must remember that only the first issue to the general public will come under the category of Bond IPO. The subsequent issues are known as “public issue of bonds”.    

Why Do Companies Issue Bond IPOs?

There are two ways of raising debt from different kinds of investors; firstly, it can be through a Bond IPO, which is the first public issue of bonds. The other method is through private debt placement. However, debt private placements are mainly meant for large institutional investors, high-net-worth individuals and sophisticated investors which have to be identified by the issuing company before the issue. Unlike public issues only identified investors can participate in these instruments. 

Apart from this, India has one of the highest savings rates as a proportion of total income in the world. Hence, Bond IPOs allow companies to diversify their funding options and tap large savings deposits that are lying unused in various financial institutions. 

Carrying out Bond IPOs helps to put these savings to productive use for India’s economic growth.

What Are the Benefits of Investing in Bond IPOs?

Here are the various benefits of investing in the public issue of bonds:

  • Lower Minimum Investment 

One major benefit of investing through the public issue of bonds is the low minimum investment amount. It varies from company to company, but generally, the minimum amount is in the range of ₹1,000 – ₹10,000. As a result, it is quite an affordable option. 

  • High Return Potential 

The rate of interest offered to retail investors is slightly higher than that offered to a financial institution or Bank. Therefore, you can enjoy higher returns if you plan to put your money in a Bond IPO. 

  • Exchanging Listed 

The debt securities raised through Public issues are listed on the exchange. This helps you access regular performance updates from the company as per listing rules and arms them with better monitoring of their portfolio. Listing on the exchange also increases the liquidity in the secondary market. It allows you to invest in bonds and exit your investments easily and quickly versus other illiquid complex debt products.

  • Greater Transparency 

As a bond IPO is subject to stringent terms and conditions of the Securities and Exchange Board of India, it comes with greater transparency. You will get all the information related to the objective of the bond issue, issue price, interest rates, etc. This enables you to analyse them and make an appropriate decision objectively. 

  • Easy Process 

With the advent of online trading and application mechanisms, investing and taking part in various Bond IPOs have become very easy. You can invest in them from the comforts of your home. Getting a part of some top-rated corporate bonds is now just a click away. 

Also Read: How is IPO Priced or Valued?

Who Can Invest In Bond IPOs In India?

A bond IPO in India is an initial public offering of bonds by a private or public sector company to the general public. Bond IPOs are a method for firms to raise funds, just like equity IPOs. Bond IPOs are open to a variety of investor types, including:

NRIs: NRI stands for  Non-Resident Indians. NRIs may be qualified to invest in domestic bond IPOs under certain conditions specified by the RBI and conditions outlined in the IPO prospectus.

RIIs: RIIs stands for Retail Individual Investors. These are individual investors who have the choice to purchase bonds up to a fixed maximum that is often specified in the bond IPO prospectus and is frequently set at Rs. 2 lakhs.

HNIs: HNIs stands for High Net Worth Individuals. Individuals whose bond application exceeds the standard RII cap fall under this category. The application is classified as an HNI application if it costs more than 2 lakhs.

QIBs: QIBs stands for Qualified Institutional Buyers. Institutional businesses, including banks, mutual funds, and insurance companies, are included in this group. Usually, a certain portion of the IPO is set aside for this group.

CIS: CIS stands for Corporate Investors. This designates corporate or commercial firms that could become bond IPO investors.

Steps to Apply For Bond IPOs

How to Apply for an IPO Offline:

  • Head to the closest branch of your chosen bank or brokerage firm.
  • Complete the ASBA application, ensuring you provide all required KYC information.
  • Your bank will block the necessary funds. Once shares are allotted to you, the relevant amount will be taken from your account.

How to Apply for an IPO Online:

There are two methods to apply for an IPO online: Through a Broker’s platform, and via Internet banking. Let’s take a look at both of them.

Applying via Broker Platforms:

  • Access and log into your broker’s online platform or mobile app.
  • Search for the IPO section and choose the company you’re interested in.
  • Specify the lot size or bid quantity and set your bid price.
  • Enter your UPI ID and confirm your application.
  • Once you get the mandate alert on your UPI app, authorize the transaction.

Applying via Internet Banking:

  • Use your login details to access your online banking.
  • Find and select the ASBA section.
  • Opt for the ‘IPO Application’ and pick the company you want to invest in.
  • Provide necessary details like your PAN and full name.
  • Define your bid in quantity and price, then finalize your application.
  • It will be processed if you bid before 2 p.m. on a business day. Otherwise, it’ll be queued for the following day.

Documents Required for Debt IPO

Here are the following documents required for a Debt IPO:

  • PAN Card
  • KYC Documents
  • Bank Account Details (For blocking funds through ASBA)
  • Demat Account Details
  • Proof of Income
  • Photographs
  • Signed Application Form
  • UPI ID (if applying online)
  • Cheque or DD (If not through ASBA)

What Is the Payment Process in Bond IPO in India?

The payment mechanism is fairly straightforward for this process. Based on your investment amount, there are two methods of making such investments:

  • Unified Payment Interface (UPI)

If the investment amount in these bond IPOs is up to ₹5 lakh, you can make such payments through UPI. It is an instant payment mechanism introduced by the National Payment Corporation of India, allowing payments without fees. 

You just have to select the UPI ID of the entity to whom payment is being made and enter the UPI PIN to transfer the required amount successfully. 

  • Application Supported by Blocked Amount (ASBA)

The ASBA payment process can be used for more than ₹5 lakh payments. It functions as an authorization submitted to a bank by you to keep aside the application money in the account and would be used for subscribing to new bonds via the bond IPO. 

What Is the Allotment Process of Bond IPO?

Here are some categories through which the allotment process happens: 

  • Retail investors – For applications up to ₹10 lakh. These applications must be submitted by individual investors or Hindu Undivided Families (HUF). 
  • Non-institutional investors – Trusts and company treasuries.  
  • Institutional investors – Banks, insurance companies, mutual funds, etc. 
  • High net-worth individuals – For applications amounting to more than ₹10 lakh. 

If the investor submits a bid on the BSE iBBS platform, they will receive a bid ID for each submission. To check the application status, the investor must enter a combination of their application number and PAN and select the relevant issue name.

Final Word 

Investing in Bond IPO is an investor-friendly process of using your money for subscription of bonds. Different companies come out with different offer documents, and it is important that you carefully read and analyse them as per your investment goals before making any decision. 

Frequently Asked Questions

Who regulates Bond IPOs in India?

The Securities and Exchange Board of India (SEBI), which is India’s capital market regulator, is responsible for the regulation of Bond IPOs in India.

What are the disadvantages of Bond IPOs?

 One major drawback related to Bond IPOs is that they entail huge costs in terms of legal fees and compliance charges to the companies. This, in turn, effectively raises their net cost of borrowing.

What will happen if I cancel a Bond IPO application?

If you cancel your application process before the closing date, all your bids will be immediately rejected. However, companies may not allow cancellation after the closing date, but this may vary from company to company.

What is debt private placement?

It is the sale of bonds to a few select investors or institutions rather than making them available for general investors in open markets. Hence, as the name suggests, the debt is placed privately.

When will I get my money back if I cancel the allotment?

If you cancel the allotment, your money will typically be refunded within a few working days.

Are bond IPOs safe for investing?

Bond IPOs carry risks like any investment, but their safety largely depends on the issuer’s creditworthiness and the bond’s terms.

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Jatin Pareek

Investment Associate
Jatin is an Investment Professional in the making with expanding expertise in the debt and equity markets. He has completed his Bachelor of Technology in Civil Engineering from the Manipal Institute of Technology. He has helped build Wint Wealth in various capacities ranging from being a member of the Investor Relations Team to contributing actively at the Founder's Office. He has been an integral part of the Assets Team for about a year now.

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