India’s bond market has completely changed in the last decade. There was a time when only big institutions and banks had dominance in this market. Common investors did not think much about it. But today this market has increasingly become accessible to common people. According to data from CareEdge Ratings, the total size of corporate bonds was Rs 11 lakh crore in FY 2012, which has increased to about Rs 59 lakh crore by FY 2026. During this period, the market has grown at a compound annual growth rate (CAGR) of 13.1 percent. This change means that now apart from bank FD, a big and reliable option is being prepared for the common man for long-term safe investment. Let us understand how this change came about and what improvements are yet to happen in the market.
How did small investors enter?
The biggest change in the bond market is the increasing participation of small investors. According to Aditi Mittal, co-founder of Indiabonds, the market is now getting bigger on every scale. Trading figures testify to this. The number of bond trades was 11.9 lakh in FY 2025, which more than doubled to 28.4 lakh in FY 2026. At the same time, the average trade size has declined by 46 percent to around Rs 78 lakh. This decline clearly shows that now even small investors are investing money in this market.
Nikhil Aggarwal, founder of Grip Invest, believes that the OBPP framework implemented by SEBI in 2022-23 has opened a safe digital path for online bond investment. Now common investors can easily invest money in Bond SIPs, government securities and high return fixed-income options.
Big boost from change in rules
Regulatory bodies have played an important role in this expansion of the market. Sarbartho Mukherjee, senior economist at CareAge Ratings, says that special emphasis has been laid on increasing investor protection and transparency. In the year 2025, the Reserve Bank (RBI) abolished the investment limit of 30 percent for foreign portfolio investors (FPIs). Apart from this, due to the Fully Accessible Route (FAR) implemented in the year 2020, foreign investment has also increased.
The result was that foreign investment in FAR bonds reached a five-year high of Rs 1.32 lakh crore in FY 2025. Sovereign Green Bonds and new products related to sustainability have also come in the market, which are helping in raising money for sectors like infrastructure and renewable energy.
Despite development, some challenges remain
Despite all these positive changes, the Indian bond market still has a long way to go. Banks still remain the biggest source of credit for companies. Of the approximately Rs 45 lakh crore raised by the non-financial commercial sector in the financial year 2026, 65 percent has come directly from banks. This shows that the bond market has still not become the main source of corporate funding.
The second major challenge is the ignorance of low rated bonds in the market. Even today, 58 percent share is only in secured bonds with AAA rating, while 19 percent share is in AA rated bonds. Due to strict investment rules of insurance companies and pension funds, lower rated companies have to struggle to raise money through bonds. Moreover, the total stake of foreign investors is still limited to only 5.4 percent. Market experts believe that in the coming time, work will have to be done on increasing liquidity (cash flow) and attracting foreign investment, only then this market will be able to become a strong alternative to the banking system.
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