What Is a Bond Maturity and Why It Matters

When investing in bonds, one of the most important terms you’ll come across is "maturity." It may sound technical, but understanding what bond maturity means can help you make better investment choices—especially in India’s growing bond market.

In this blog, we’ll explain in simple terms what bond maturity is, why it’s important, the different types of maturity periods, and how maturity affects your returns, liquidity, and risk as a bond investor.

What Is Bond Maturity?

Maturity in a bond refers to the date on which the bond expires, and the issuer repays the principal amount to the bondholder.

When you buy a bond, you lend money to the issuer (which could be a company, government, or public sector undertaking). In return, they pay you regular interest (coupon payments) until the maturity date. At maturity, they are obligated to return your invested amount, also called the face value or par value.

Example:

If you buy a ₹1,000 bond with a 5-year maturity and 8% interest, you will:

• Get ₹80 every year as interest
• Receive ₹1,000 back after 5 years, when the bond matures

Types of Bond Maturity Based on Tenure

Bonds come with different maturity periods depending on who issues them and for what purpose.

1. Short-Term Bonds

• Maturity: Less than 3 years
• Examples: Treasury bills, commercial papers
• Ideal for: Investors with low risk appetite and short investment goals

2. Medium-Term Bonds

• Maturity: 3 to 7 years
• Examples: PSU bonds, corporate bonds
• Suitable for: Those looking for balance between income and liquidity

3. Long-Term Bonds

• Maturity: More than 7 years (can go up to 40 years)
• Examples: Infrastructure bonds, government bonds (G-Secs)
• Best for: Long-term investors who want predictable income and tax efficiency

Why Maturity Matters in Bond Investing

Bond maturity is not just a date—it plays a big role in:

• Determining how long your money is locked
• Affecting your returns and interest rate
• Impacting the bond’s price in the secondary market
• Guiding your portfolio’s risk profile

Let’s explore each of these in detail.

1. Impact on Liquidity

The longer the maturity period, the longer your funds are tied up.

If you invest in a 20-year government bond, your capital is blocked until maturity unless you sell it in the secondary market. Shorter maturity bonds, on the other hand, return your capital sooner, making them better for liquidity.

So if you may need the money in the near future, it’s better to choose a shorter maturity bond.

2. Impact on Interest Rate Risk

Interest rate risk is the risk that arises when market interest rates change.

• Longer maturity bonds are more sensitive to interest rate changes.
• When interest rates rise, bond prices fall—especially for long-duration bonds.
• Short-term bonds are less affected, making them less volatile.

So, if you’re risk-averse, or expect interest rates to rise, shorter-term bonds are safer.

3. Impact on Yield and Return

Usually, the longer the maturity, the higher the yield. That’s because investors demand extra return for locking in their money for a longer period.

This concept is called the yield curve, where long-term bonds generally pay more interest than short-term ones.

Example:

If you are willing to invest for a longer period, you can earn a higher return—but with added interest rate risk.

4. Maturity and Investment Goals

Choosing the right bond maturity depends on your financial goals.

By aligning maturity with your goals, you avoid the need to sell before maturity and can plan your cash flow better.

5. Reinvestment Risk

This is the risk that when your bond matures, you may not find another bond with equally attractive interest rates.

Shorter-term bonds expose you to reinvestment risk more frequently because they mature sooner. If interest rates drop in the future, your reinvested returns may be lower.

Longer-term bonds help lock in rates for a longer period, reducing reinvestment risk.

Excel Formula to Calculate Maturity Date

You can use Excel to calculate a bond’s maturity date easily:

Formula:

=EDATE(Start_Date, Years*12)

If:

• Start date is in cell A2 (e.g., 01/04/2024)
• Maturity period is 5 years

Use:

=EDATE(A2, 5*12)

This will give you the maturity date of the bond.

Excel Formula to Calculate Years to Maturity from Today

You can also calculate how much time is left until a bond matures:

=DATEDIF(TODAY(), Maturity_Date, "y")

If the maturity date is in cell B2:

=DATEDIF(TODAY(), B2, "y")

This tells you how many years remain until the bond matures.

Should You Always Hold Till Maturity?

Not necessarily. Bonds can be sold in the secondary market before maturity. But keep in mind:

• The price may be higher or lower than your purchase price, depending on market interest rates
• Selling before maturity can lead to capital gains or losses

If you want guaranteed capital protection, holding till maturity is a better choice.

Callable and Perpetual Bonds – Special Cases

Callable Bonds

Some bonds come with a call option, meaning the issuer can repay the bond before maturity. This is usually done when market interest rates fall.

• Risk: You may lose future interest payments
• Advantage: Often come with a higher coupon to compensate

Perpetual Bonds

These bonds have no maturity date. They pay interest indefinitely unless the issuer calls them back.

• Issued mainly by banks as part of their capital structure
• Riskier but offer higher yield

Final Thoughts

Bond maturity is more than just a date—it defines your return timeline, risk exposure, and liquidity options.

Whether you're investing in a short 2-year PSU bond or a 20-year government G-Sec, knowing how maturity works helps you align your investments with your goals, tax planning, and risk appetite.

At MeraDhan, we help you discover bonds based on maturity periods, so you can choose investments that match your time horizon and return expectations.

Explore Bonds by Maturity at MeraDhan

From short-term corporate bonds to long-term tax-free PSU bonds, MeraDhan helps you compare, learn, and invest smartly. Filter bonds by maturity period, yield, and issuer rating—all in one place