Imagine you have ₹50 Lakhs to invest. Most people make a classic mistake: they dump the entire amount into a single 10-year bond or Fixed Deposit (FD).
The problem? Your money is locked. If interest rates rise next year, you are stuck earning lower returns. If you need cash in 3 years, you might have to sell at a loss or pay a penalty.
The Solution: Bond Laddering. Instead of buying one big bond, you buy a series of bonds that mature one after the other—like steps on a ladder.
🪜 Ladder Simulator
See how your cash flow distributes over the years.
| Bond | Invested Amount | Maturity Year | Est. Maturity Value |
|---|
1. Why build a Ladder?
A bond ladder solves the two biggest risks in fixed-income investing: Interest Rate Risk and Reinvestment Risk.
Bond prices and yields usually have an inverse relationship. If you buy a 10-year bond today at 7%, and rates rise to 8% tomorrow, your bond loses value. However, short-term bonds are less affected by this volatility.
- Rate Averaging: Since a portion of your portfolio matures every year, you get to reinvest that money at current market rates. If rates go up, you capture the benefit immediately with your maturing cash.
- Guaranteed Liquidity: You don't have to wait 10 years to see your money. A "paycheck" (Principal + Interest) arrives every year.
2. How to execute this in India?
In the US, building a ladder is as simple as buying Treasuries. In India, secondary market liquidity for corporate bonds can be poor. Here are the two most practical ways to execute this strategy today:
Option A: Target Maturity Funds (TMFs)
This is the easiest tool for retail investors. Mutual Fund houses launch passive funds with specific maturity years. They hold the bonds until maturity, mimicking the behavior of a real bond.
- 20% in Edelweiss Nifty PSU Bond Plus SDL Index Fund - 2026
- 20% in Aditya Birla Sun Life Nifty SDL Plus PSU Bond Index Fund - 2027
- 20% in Axis Nifty SDL September 2028 Index Fund
- 20% in Bharat Bond ETF - 2030
- ...and so on.
Option B: RBI Retail Direct (G-Secs)
For the purist who wants zero credit risk. You can log into the RBI Portal and buy Government Securities (G-Secs) or State Development Loans (SDLs) directly.
Simply filter for "Dated Securities" and pick one bond maturing in each of the next 5 years. This provides a Sovereign Guarantee on your capital.
3. The "Rolling" Ladder
A ladder isn't a one-time setup; it is a cycle. This is how you turn a 5-year investment into a perpetual pension.
Let's say you built a 5-year ladder (2025 to 2030).
- In 2026, your first bond matures. You get your Principal + Interest back.
- You do not spend the principal.
- You take that cash and buy a new bond at the "top" of the ladder—maturing in 2031.
By constantly rolling the shortest bond into a new longest bond, you maintain a steady average maturity and keep the income stream alive forever.
⚠️ Important Tax Note (FY 2025)
As per recent Finance Acts, Debt Mutual Funds (including TMFs) are generally taxed at your Income Tax Slab Rate, regardless of holding period. There is no indexation benefit.
However, direct G-Secs/SDLs (via RBI Direct) may still attract 12.5% LTCG if held for more than 12 months (subject to current legislation). Consult a CA before choosing between TMFs and Direct Bonds.
Final Verdict
Bond Laddering is the boring, predictable, and highly effective way to manage wealth. It doesn't promise "multibagger" returns, but it promises sleep-well-at-night safety with returns that generally beat a standard Savings Account.