I am often asked a simple question that decides how I build fixed income plans: what is the difference between government bonds and corporate bonds? The answer sits in who borrows the money, how they promise to repay it, and what an investor like me should expect through the life of the investment.

Who issues the bond and why it matters
 Government bonds are issued by the sovereign or state governments to fund public spending and manage the nation’s finances. Because the issuer can tax and has deep market access, the perceived default risk is generally lower. Corporate bonds are issued by companies to finance expansion, projects, or working capital. Here, repayment rests on the company’s cash flows and balance sheet strength. That single distinction shapes everything that follows.

Credit risk and ratings
 With sovereign paper, I pay attention to interest rate movements and liquidity more than default risk. With corporate bonds, credit quality becomes central. Ratings from agencies provide a quick view, but I still read the rationale: industry outlook, leverage, coverage ratios, and covenants. A high-quality PSU or a top private issuer can be very robust, while a weaker borrower can add risk even if the coupon looks tempting. I remind myself that yield is not free; it is compensation for risk.

Returns and spreads
 Corporate securities typically offer a yield spread over comparable government securities. That spread compensates for credit and liquidity risk. If I want stability for a long horizon, I look at government paper across maturities. If I seek extra income and accept additional risk after due diligence, I consider corporate bonds from strong issuers. Either way, I link the choice to my time horizon and cash flow needs rather than to headline rates.

Liquidity and access
 Government bonds trade actively on exchanges and through platforms designed for retail. Price discovery is usually cleaner. Corporate paper trades as well, but activity can vary across issuers and maturities. Public issues of non-convertible debentures make access easier for first-time buyers, while the secondary market offers many options for seasoned investors. In both cases, I use my demat account and ensure settlement timelines and accrued interest are understood.

Interest rate risk
 Both segments move with rates. Longer maturities are more sensitive to rate changes. If I plan to hold to maturity, interim price swings matter less. If I may exit early, I pay attention to duration and the shape of the yield curve before I commit.

Tax treatment
 Coupons are typically added to my income and taxed at my slab. Capital gains depend on holding period, listing status, and current rules. Tax law evolves, so I always check the latest provisions before I act.

How I use them together
 I think of government securities as the core that anchors stability and helps me mark my portfolio to a reliable benchmark. I use carefully chosen corporate bonds to enhance income, diversify across sectors, and build a ladder that matches future expenses. Concentration risk is something I avoid; I spread exposure across issuers and maturities and keep an eye on covenant quality and upcoming redemptions.

Bottom line
 The difference between government bonds and corporate bonds is not merely academic. It is the framework for how I balance safety, income, and flexibility. When I understand the issuer, the risk that I am being paid to take, and the path of cash flows, I can choose the right instrument for the right goal—and let fixed income play its steady role in my portfolio.