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The Hidden Risk of High Yield Bonds


TruCap default reveals risks of high yield bonds in India. Know why blindly trusting online bond platforms for high returns can cost investors.

Recently, many retail investors were shocked when TruCap Finance, a non-banking finance company (NBFC), defaulted on its bond payments. According to Mint, the company failed to pay interest and principal due on some listed non-convertible debentures (NCDs). Many common investors are now stuck, not knowing when or if they will get their money back.

But this is not just about TruCap. This is about a dangerous trend — chasing high yields on bonds without understanding the risks, often lured by flashy online bond platforms that showcase tempting returns.

Let’s break this down in simple language.

TruCap Bond Default: The Hidden Risk of High Yield Bonds

The Hidden Risk of High Yield Bonds

How Online Bond Platforms Lure Retail Investors

Today, investing in bonds is just a click away. Many new-age platforms advertise bonds with 8%, 10%, or even 12% annual returns — far higher than your bank fixed deposit (FD) rates of 6-7%. They highlight these high coupon rates in bold letters. For many retail investors, especially those who want “safe” investments, this looks very attractive.

But here’s the catch: higher return always comes with higher risk. Many investors don’t realise that bonds are basically loans you give to a company — and if that company is financially weak, it might not pay you back.

Just because these platforms are SEBI registered does not mean the bonds offered from such platforms are safe. They are just the platform providers, and for that, they are registered with SEBI, but not to provide you the best possible guaranteed returns.

A few days ago, I created a YouTube short after I noticed many people were asking me about such platforms. You can refer to it here.

What Went Wrong with TruCap?

TruCap Finance Ltd is an NBFC that lends money to small businesses and offers gold loans. To raise funds for its lending business, TruCap issued non-convertible debentures (NCDs) — basically bonds — to the public.

  • Coupon (interest rate): 13% to 13.5% — very attractive when compared to normal FD rates of 6–7%.
  • Credit rating: Initially BBB, which is just investment grade.
  • Who sold these bonds? Online bond platforms like BondsIndia, GoldenPi, Grip, and Northern Arc (Altifi) offered them to retail investors.

Many investors thought: “Better than an FD, safe enough, great returns!”

But the reality turned out to be very different.

What went wrong?

In simple words:

  1. TruCap had weak financial health.
  2. It promised high returns (13%+) to attract investors.
  3. When bad loans rose, its credit rating fell.
  4. By bond rules, a sharp downgrade forced early repayments — which the company didn’t have money for.
  5. The Marwadi group’s promised rescue funds were delayed.
  6. Result: Default.

How much money stuck?

  • Investors put money in different bond series, like ISIN INE615R07042, INE615R07091, etc.
  • Amounts range from Rs.2 crore to over Rs.23 crore.
  • Interest unpaid is lakhs per bond series.
  • The total stuck is about Rs.55 crore.

This means common investors — retirees, salaried people, even small HNIs — are now helplessly waiting for some resolution.

Why Did So Many Investors Get Trapped?

The biggest reason: High returns looked too good to resist.

Online bond platforms show these bonds as if they are better versions of FDs — “Earn 13% safely!”

But they often do not explain enough about:

  • The credit rating’s true meaning.
  • The company’s financial stress.
  • What happens if the company defaults — unlike an FD, there is no insurance.

Many investors do not read the fine print — they trust big words like “listed”, “trustee”, “secured”, or “NBFC”. They assume these make it safe. But remember — the company still has to earn money to pay you.

Why Chasing Yield Blindly is Risky

Many investors think “higher interest is always better”. But they forget that in bonds, return is directly linked to risk.

Here’s why:

  1. No guarantee like FDs: Bonds issued by companies do not have deposit insurance. If the company fails, your money is stuck.
  2. Low-rated companies pay more: Safer companies like RBI, Government of India, or top-rated PSUs raise money at lower rates (6-7%) because lenders trust them. Riskier companies pay higher interest to attract buyers.
  3. Defaults are real: Defaults are not rare. DHFL, IL&FS, Yes Bank AT1 bonds, SREI Infrastructure, Reliance Home Finance — the list of defaults or near-defaults is long. Each time, thousands of retail investors got trapped chasing high returns.
  4. Liquidity is tricky: Unlike stocks, selling bonds mid-way is not always easy. Many corporate bonds have very low trading volumes. So if you want to exit early, finding a buyer can be hard.
  5. Hidden risks: Many investors do not read the credit rating or the company’s financials. They just see the yield. Even credit ratings can fail — IL&FS was rated AAA before its massive default! NEVER TRUST A CURRENT HIGH RATING WILL REMAIN THE SAME FOREVER YOUR INVESTMENT PERIOD.

How Online Platforms Add to the Problem

Many online platforms present bonds like an “FD with better returns”. They showcase the coupon rate boldly, but the risk factors are often hidden in footnotes.

Some don’t explain:

  • Who the issuer is
  • How strong its balance sheet is
  • What the bond’s credit rating means
  • Whether the bond is secured or unsecured
  • Whether there’s collateral backing the debt

Some platforms even promote low-rated or unrated bonds aggressively because they get higher commissions from issuers.

This makes the retail investor think they are buying something “safe” — when in reality, they are lending money to companies that even big banks might avoid!

Valid Sources That Warn the Same

SEBI, India’s market regulator, has repeatedly cautioned retail investors about blindly investing in debt instruments. For example, in its investor education initiatives, SEBI explains that corporate bonds, especially those with lower credit ratings, can carry significant credit risk.

RBI, too, through its financial literacy programs, reminds people that corporate bonds are not risk-free like government securities.

AMFI (Association of Mutual Funds in India) also says that retail investors who want debt exposure should ideally stick to well-diversified debt mutual funds or government bonds instead of putting large sums in a single company’s bond.

How to Be a Smart Bond Investor

1. Understand credit ratings: AAA means highest safety (like SBI or Indian Railways bonds). Anything below AA needs careful study. B or C means high risk. Assume that the current rating is AA; then it does not mean that the rating will remain the same throughout your investment period. If there are any changes in the financial status of the issuing company, then the same rating agencies either may downgrade or upgrade the rating.

2. Check the issuer: Is the company fundamentally strong? Does it have profits? How is its past repayment record?

3. Diversify: Never put all your money into one bond. Spread your debt investments across multiple bonds or choose mutual funds that do it for you. If you are in the accumulation phase, then debt mutual funds are far better than exposing yourself to a few bonds and creating a huge concentrated risk.

4. Check if secured: Secured bonds have collateral — unsecured ones don’t. If things go wrong, secured bond investors have some claim on company assets.

5. Stay within your risk appetite: If you can’t handle delays or defaults, stick to Government of India bonds, RBI bonds, or top-rated PSU bonds.

6. Don’t trust only platforms: Platforms are intermediaries. They may not take responsibility if the company defaults.

Final Words: If it looks too good to be true, it probably is

Bond investing is not the same as keeping money in an FD. The TruCap incident is a reminder that yield chasing can backfire badly.

Always remember: “Higher risk, higher return” is not just a saying — it’s reality. And when the risk materialises, the losses can hurt.

So, next time an online bond ad flashes “12% secure bond”, take a step back. Ask: “Why is this company paying me double the bank rate? Is it worth the risk?”

If you can’t answer these questions, talk to a trusted fee-only financial advisor. Or stick to safe options.

Stay informed, stay safe

Bonds are powerful tools, but they need caution and understanding. Don’t be blinded by big numbers. Be wise, read the fine print, and invest smartly.

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