Bond laddering
Spreading bonds across maturity dates, so that no single day's interest rate decides the outcome
Rules as on 12 October 2026; government yields as on 1 September 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Open by asking the room: if you had to put ₹5 lakh into bonds today, would you pick one maturity or several, and why? Take two or three answers. This deck shows what choosing several does. It builds on the decks on bond prices and yields and on duration.
A bond ladder is a set of bonds that mature in turn, not all at once.
Every year, or every few months, one bond repays. The holder can spend it or buy a new bond. No single date's interest rate applies to the whole sum.
Trainer notes
Keep this slide up for a moment. The idea is about dates, not about which bonds are chosen. A ladder can also be built with deposits or with funds that have a maturity date; the logic is the same.
Four terms to know first
Rung
One maturity date in the ladder. A five-rung ladder has money coming back on five different dates.
Spacing
The gap between two maturity dates. It can be three months, one year or longer.
Reinvestment
Reinvestment risk: the chance that money from a maturing bond can only be reinvested at a lower rate.
Rolling
Using the money from a matured bond to buy a new one at the far end, which keeps the ladder going.
Take-away: The opposite risk is price risk: a bond's price falls when yields rise. See the deck on bond prices.
Trainer notes
Check understanding with one question: which of the two risks worries a person who renews a one-year bond every year? Reinvestment risk. And a person who holds one 20-year bond and may need to sell it? Price risk. A ladder sits between the two.
Building a five-rung ladder
THE SET-UP
₹5,00,000 to invest in bonds bought at face value.
Assumed yearly interest: 6.0%, 6.2%, 6.4%, 6.6% and 6.8% on bonds of one, two, three, four and five years.
- Put ₹1,00,000 in each maturity. Interest in year 1: ₹6,000 + ₹6,200 + ₹6,400 + ₹6,600 + ₹6,800 = ₹32,000.
- That is 6.4% on ₹5,00,000. All of it in the five-year bond would pay ₹34,000; all of it in the one-year bond, ₹30,000.
- After one year the first bond repays ₹1,00,000. Each of the other four is one year closer to maturity.
- To keep five rungs, that ₹1,00,000 buys a new five-year bond at whatever five-year bonds pay on that day.
Result: Each year one-fifth of the money comes back, and one-fifth is reinvested at that year's rate.
Illustration with assumed figures. Tax and costs are ignored. These are not market rates or a forecast.
Trainer notes
Do the addition with the room. Point out that the ladder's income, 6.4%, sits between the one-year and the five-year rate. The ladder is not built to earn more than a single bond; it is built to spread the dates. Longer bonds do not pay more than shorter ones at all times; here we assume they do.
If rates fall by one point after year 1
| One-year bond, renewed | Five-rung ladder | One five-year bond | |
|---|---|---|---|
| Year 1 | 30,000 | 32,000 | 34,000 |
| Year 2 | 25,000 | 31,800 | 34,000 |
| Year 3 | 25,000 | 31,400 | 34,000 |
| Year 4 | 25,000 | 30,800 | 34,000 |
| Year 5 | 25,000 | 30,000 | 34,000 |
Read the chart
- Renewed one-year bond: income drops from ₹30,000 to ₹25,000 at once.
- Ladder: ₹32,000, then ₹31,800, ₹31,400, ₹30,800 and ₹30,000.
- Single five-year bond: ₹34,000 a year, but no money back until year 5.
- If rates rose by one point instead, the ladder would reach ₹38,000 by year 5.
Illustration: the ladder from the last slide. All assumed rates fall by one percentage point after year 1 and stay there. Assumed figures, not market data.
Trainer notes
The ladder's income changes one rung at a time, because only one-fifth is reinvested each year. Year 2 on the ladder: the matured 6.0% bond is replaced by a five-year bond at 5.8%, so 5,800 + 6,200 + 6,400 + 6,600 + 6,800 = 31,800. If rates rise instead, the single five-year bond still pays ₹34,000 and its market price falls; the ladder's income climbs gradually. Real rates do not move in one step and stay.
Four choices in any ladder
How long
The date of the last rung. A longer ladder holds longer bonds, whose prices move more when yields change.
How far apart
The spacing between rungs. Closer rungs return money more often and mean more reinvesting.
What sits on each rung
Government paper, company bonds, deposits or funds with a maturity date. Each carries its own credit risk and tax treatment.
What happens at maturity
Spend the money, or roll it into a new last rung. Rolling keeps the ladder the same length.
Trainer notes
These are the questions a ladder raises; we explain them and do not answer them for a client. On the third choice: a ladder does not remove credit risk. If a company on one rung fails to pay, that rung is affected whatever the spacing. See the deck on credit risk and spreads.
What the rungs can be made of
| Building block | What it is | Points to know |
|---|---|---|
| Treasury bills | Central government paper of 91, 182 and 364 days. Sold at a discount and repaid at face value; no interest is paid. | Auctions are usually held every Wednesday. Minimum ₹10,000. |
| Dated government securities | Central government bonds, generally of 5 to 40 years, paying interest every half-year. | Minimum ₹10,000. The price moves with yields until maturity. |
| State Development Loans | Dated securities issued by State Governments through auctions. | Minimum bid ₹10,000. |
| Target maturity funds | Debt index funds or ETFs with a stated maturity date. No holding may mature after that date. | Mutual fund schemes: NAV moves daily and returns are not assured. |
Sources: RBI FAQs, Government Securities Market in India; SEBI Master Circular for Mutual Funds, 20 Mar 2026, para 4.4.
Trainer notes
Company bonds and bank deposits can also form rungs; they are left out of the table only for space. '5 to 40 years' is RBI's wording for the general range of dated securities. Target maturity funds may track government security, corporate debt or mixed debt indices, so their credit risk depends on the index. A unit holder who stays to the maturity date receives the NAV of that day, not a promised amount.
RBI Retail Direct: the direct route
- 2021
Open to individuals
Launched on 12 November 2021. An individual opens a Retail Direct Gilt account with RBI online and bids in auctions of government securities.
- ₹10,000
Minimum bid
For Treasury bills, dated government securities and State Development Loans. For a Government of India dated security the upper limit is ₹2 crore per security per auction.
- No fee
Account
RBI's FAQ says no fee is charged for opening and maintaining the account. Payment-gateway charges, if any, are borne by the investor.
Sources: RBI press release 'RBI Retail Direct Scheme', 12 Nov 2021; RBI FAQs, Government Securities Market in India; RBI Statement on Developmental and Regulatory Policies, 6 Aug 2025.
Trainer notes
Since August 2025 the portal also offers auto-bidding for Treasury bills: an investor can instruct it to place bids, and to reinvest, in later auctions. That is rolling a rung, done automatically. Retail bids are non-competitive: the investor does not quote a yield. Securities can also be bought and sold in the secondary market through the portal. The ₹10,000 minimum, the ₹2 crore limit for Government of India dated securities and the 1% of notified amount limit for SDLs are from RBI's Retail Direct FAQs.
Where things stand
Government yields by maturity around 1 September 2026, and the policy rate. Check the date.
- 91-DAY T-BILL
- 5.26%Cut-off yield in the auction result RBI published on 27 August 2026.
- 364-DAY T-BILL
- 5.80%Cut-off yield in the same auction result. The 182-day bill: 5.62%.
- 10-YEAR G-SEC
- 6.96%Yield on the 6.94% GS 2036 on 1 September 2026.
- POLICY REPO RATE
- 5.50%From 7 October 2026. It was 5.25% on 1 September 2026.
Sources: RBI press release, T-bill auction result, 27 Aug 2026; RBI Current Rates, 1 Sep 2026 (10-year yield, repo rate); RBI MPC Resolution, 7 Oct 2026.
Trainer notes
These are the rates a ladder of government paper would have met on those dates; each rung earns the rate of the day it is bought. Market figures are shown with a lag of at least 30 days, in line with SEBI's norms on price data used for education. Do not comment on where yields will go next. Refresh these at each month-end, using market figures that are at least 30 days old.
If you learnt this from older material
The idea of a ladder has not changed. The ways to build one, and the tax on debt funds, have.
What older material assumes
- Individuals reach government bonds through funds or intermediaries.
- A ladder is built only from separate bonds or deposits.
- Debt fund units held over three years are taxed at 20% with indexation.
What holds now
- Individuals can bid directly on RBI Retail Direct, since 12 November 2021.
- Target maturity index funds and ETFs have a stated maturity date.
- Units bought from 1 April 2023: gains taxed at slab rate, whatever the holding period.
Sources: RBI press release, 12 Nov 2021; SEBI Master Circular, 20 Mar 2026, para 4.4; income-tax rules on specified mutual funds (see capital gains deck).
Trainer notes
The tax point matters for a ladder built with target maturity funds: they are debt funds, so gains on units bought on or after 1 April 2023 are taxed at the investor's slab rate. See the deck on capital gains tax for the details and for older units. We explain the rule; we do not compute a client's tax.
Four things people get wrong
Misconception'A ladder locks in today's rates.'
What is trueOnly on the bonds already bought. Each maturing rung is reinvested at the rate of that day, which may be higher or lower.
Misconception'Held to maturity means no risk.'
What is truePrice swings matter less if the bond is never sold. The issuer can still fail to pay, and inflation can outrun the interest.
Misconception'A ladder earns more than one bond.'
What is trueNot by design. It earns a blend of shorter and longer rates. Its purpose is to spread dates, not to raise the return.
Misconception'A target maturity fund is a fixed deposit.'
What is trueIts NAV moves every day with yields. The yield shown at entry is an indication, not an assured return.
Trainer notes
On the second point: RBI describes government securities as carrying practically no risk of default, so there the remaining risks are inflation and having to sell early. On the fourth: an investor who leaves a target maturity fund before its maturity date gets the NAV of that day, which reflects market yields then.
Check yourself
Question 1: ₹6,00,000 is split equally across bonds of one, two and three years paying 6%, 6.5% and 7% a year (assumed). What is the first year's interest, in rupees and as a rate?
Answer: ₹2,00,000 in each: ₹12,000 + ₹13,000 + ₹14,000 = ₹39,000. That is 6.5% on ₹6,00,000.Question 2: Rates fall. One person renews a one-year bond each year; another holds a five-rung ladder. Whose interest income falls faster, and why?
Answer: The person renewing the one-year bond. All of that money is reinvested at the lower rate within a year. On the ladder only one-fifth is reinvested each year, so income falls one rung at a time.Question 3: A client says a target maturity fund guarantees the yield shown on the day of investing. What is the accurate statement?
Answer: It is a mutual fund scheme with a stated maturity date. Its NAV moves daily and returns are not assured. The yield shown is an indication for someone who stays to maturity, before costs, and it assumes every issuer pays.
Sources and disclaimer
Sources for the figures in this explainer
- Treasury bill tenors, discount basis, weekly auctions, dated security tenors, State Development Loans, ₹10,000 minimum, ₹2 crore limit: RBI FAQs 'Government Securities Market in India'.
- RBI Retail Direct: RBI Press Release 2021-2022/1183, 12 Nov 2021. Auto-bidding for Treasury bills: RBI Press Release 2025-2026/843, 6 Aug 2025.
- Target maturity index funds and ETFs: SEBI Master Circular for Mutual Funds, 20 March 2026, paragraph 4.4 (norms for debt ETFs and index funds).
- Treasury bill cut-off yields: RBI Press Release 2026-2027/972, 27 Aug 2026. 10-year yield (6.9570%) and repo rate of 5.25% on 1 Sep 2026: RBI Current Rates (page archived 2 Sep 2026).
- Repo rate 5.50% from 7 Oct 2026: RBI MPC Resolution, 7 Oct 2026. Tax on debt fund units: income-tax provisions on specified mutual funds, as summarised in a fund-house tax reckoner (secondary).
- The ladder, its interest rates and the chart are illustrations with assumed figures. They are not quotes for any actual bond, deposit or scheme.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).