Selling bonds before maturity

Ways to exit a bond early

Selling before maturity means finding a buyer, not asking the issuer for your money back. Most early exits are a sale to another investor in the secondary market. The issuer redeems early only if the bond's terms give investors a put option or give the issuer a call option.

Stock exchanges have had a debt segment since SEBI's circular of 24 January 2013, with order matching, request for quote and negotiated trades. NSE and BSE launched request-for-quote (RFQ) platforms in February 2020: one party asks for a quote, others respond, and an accepted quote is a deal that is cleared and settled through the exchange's systems. SEBI's master circular for non-convertible securities lets stock brokers registered in the exchange's debt segment place or seek bids on the RFQ platform on behalf of clients. Government securities, state development loans and treasury bills are among the securities eligible on RFQ.

How the sale price is worked out

A bond's coupon is fixed, so its price moves when market yields move. If yields rise after you buy, a new buyer can get the higher yield elsewhere and will pay less for your bond; if yields fall, your bond's fixed coupon is worth more and the price rises. RBI's Retail Direct FAQ puts it plainly: government securities carry market risk if you sell before maturity, even though they carry no credit risk.

The table shows the effect on an 8.5% bond with ₹1,000 face value paying half-yearly, bought at par. These are our calculations, not market quotes. A one-point change in yield moves the price by about 1% with one year left, about 2.6% with three years left and about 4% with five: the longer the time to maturity, the bigger the swing. You can rerun them in the bond yield calculator.

Yield is not the only thing a buyer prices. A downgrade, a missed payment or news about the issuer pushes the yield a buyer asks for higher, and the price lower. On the RFQ platform, yields and prices are converted using the due dates in the bond's cash-flow schedule, not the dates the money is actually paid, under a SEBI change in force since 18 August 2025.

Clean price, dirty price and accrued interest

Coupons are paid only on coupon dates, but the interest builds up every day. When a bond changes hands between coupon dates, the buyer will receive the whole next coupon, so the buyer pays the seller the interest accrued since the last coupon. RBI's FAQ on government securities counts accrued interest from the last coupon date up to the day before settlement. The quoted price without it is the clean price; clean price plus accrued interest is the dirty price, and that is what the buyer pays.

The day count differs by market. RBI's FAQ says the government bond market counts every month as 30 days and the year as 360 (30/360), while the money market, including treasury bills, uses actual days over 365. For listed corporate bonds and NCDs, the NCS Regulations and SEBI's master circular set an Actual/Actual convention: the entire year that contains 29 February counts as 366 days, whether the coupon is paid annually, half-yearly, quarterly or monthly. Offer documents define that year, for example as running from one allotment anniversary to the day before the next, so the issuer's cash-flow illustration is the final word.

RBI's own example: a trade in the 8.83% government security of 2023 with the last coupon on 25 November 2013 and settlement on 30 January 2014 accrues 65 days on the 30/360 count, which is ₹1.5943 per ₹100 of face value. At a clean price of ₹100.50 the dirty price is ₹102.0943, and the consideration on ₹5 crore of face value is ₹5,10,47,150.

Coupons go to whoever holds the bond on the record date. For listed NCDs, the record date is 15 days before the payment is due (NCS regulation 23(7)), and the issuer tells the exchange of it at least three working days in advance. If you sell after the record date, the next coupon still comes to you. We did not read how exchanges price a trade in that window, so check the contract note or deal sheet.

The bond yield calculator works out accrued interest and the dirty price for any pair of dates.

How easy it is to find a buyer

Listing makes a sale possible, not certain. SEBI's master circular says low secondary-market trading in corporate bonds, partly because many institutions hold them to maturity, has led to the market being perceived as illiquid. A thinly traded bond may sell only at a discount to what the yield tables suggest, or not on the day you want.

Government securities have more support. RBI's November 2021 notification allows primary dealers to quote prices on the NDS-OM odd-lot and RFQ segments through market hours and to respond to Retail Direct investors with a market-relevant quote.

To give retail investors a way out, SEBI's Liquidity Window framework, inserted by its circular of 16 October 2024, lets an issuer offer a put option on set dates. It applies only to bonds issued after that framework and only where the issuer chooses to offer it, so check the offer document.

One more thing a buyer will not get: in public issues, extra interest or a price discount for senior citizens, women or defence personnel is restricted to initial allottees and ends on any transfer, according to SEBI's annual report for 2025-26.

• The issuer decides whether to offer a Liquidity Window, with board approval, and whether it is open to all holders or only retail investors (holdings of up to ₹2 lakh face value).
• It can open only after one year from issue; each window stays open for three working days, monthly or quarterly, on a schedule disclosed in the offer document.
• Over the bond's life the issuer must accept put options on at least 10% of the issue; if a window's limit is exceeded, tenders are accepted in proportion.
• You tender by blocking the bonds in your demat account during trading hours, and can change or withdraw the bid while the window is open.
• The bonds are valued on the day before the window opens, under SEBI's mutual fund valuation rules; you receive no less than that value minus 1 percentage point (100 basis points), plus accrued interest, within one working day of the window closing.

Delivering the bonds: DDPI or a delivery instruction

When you sell through a broker, the bonds have to leave your demat account to settle the trade. The Demat Debit and Pledge Instruction (DDPI) lets your broker do that for you. SEBI's FAQ for stock-broker clients lists its four uses: transferring securities to settle trades, pledging for margin, mutual-fund orders on exchange platforms, and tendering shares in open offers.

DDPI is not mandatory under SEBI's or the exchanges' rules. Without it, you authorise each delivery yourself with a physical delivery instruction slip (DIS) or an electronic one (eDIS). A power of attorney you gave a broker before DDPI stays valid until you revoke it.

SEBI's circular of 6 October 2022 requires brokers and depository participants that offer DDPI to let clients revoke or cancel it. Ask your broker or depository participant for its process; SEBI's FAQ advises examining the scope of any DDPI or power of attorney before you sign it.

Costs and tax on a sale

A sale through a broker carries the broker's charges and, when the bonds leave your demat account, a depository debit charge; the DP charges guide explains it. Online bond platforms' fees and how they are disclosed are compared in the OBPP fees comparison. Retail Direct charges no fee for the account, though payment gateway charges apply when you buy.

The difference between what you sell for and what you paid is a capital gain or loss. Under the Income-tax Act, 2025, a listed bond or NCD held for more than 12 months is long-term and the gain is taxed at 12.5% with no indexation; held for 12 months or less, the gain is added to your income and taxed at your slab rate. A gain on an unlisted bond or debenture is short-term however long you held it. The bond taxation guide has the sections and the exceptions.

We did not read how the accrued interest you receive on a sale is taxed, so this guide does not cover it. Ask a tax adviser before you rely on a particular treatment.

Before you sell

Selling early swaps a known payout at maturity for today's market price. Work through these before you place the order.

• Check the bond's terms for a put option or Liquidity Window: it may be a better exit than the market if a window is coming up.
• Compare the price you are offered with the yield it implies; the bond yield calculator turns a price into a yield.
• Add the accrued interest and check the dirty price and total on the deal sheet or contract note before you confirm.
• Note the next record date: a sale after it still leaves you the next coupon.
• Count the charges, and check whether your holding period makes the gain long-term or short-term.
• If you bought at a special rate in a public issue as a senior citizen, woman or defence personnel, remember that the buyer will not get that benefit.