Understanding Debt

Written by Mariyam Sara

3 min read | Updated on October 16, 2025, 17:56 IST

Table of Contentsarrow close icon
  1. What is corporate debt?

  2. Types of corporate bonds

  3. Long-term loans from banks

  4. Does a company's debt matter to investors?

  5. How debt impacts stock price

About Upstoxarrow close icon

Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.

On Tuesday, the rupee fell 5 paise to an all-time low of ₹88.80 against the US dollar. | Image: Shutterstock
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When companies need additional capital to support their operation, it either raises this capital by issuing shares and corporate bonds or by obtaining long term loans.

In this blog, you will learn in-depth what corporate debt is, type of corporate debt and how it impacts stock prices.

What is corporate debt?

When a company needs capital but doesn’t want to dilute its controlling interest by issuing equity, it borrows funds from high networth individuals, the government, or the general public.

To meet its long and short-term monetary requirements, companies issue corporate bonds or obtain loans.

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Types of corporate bonds

Corporate bonds are classified into two types

Short-term bonds

Short-term bonds have a maturity of 1-3 years, these bonds help companies meet their working capital requirement.

Long-term bonds

These bonds have a maturity of more than 10 years and help companies fulfil their long-term capital requirements.

Callable bonds

In callable bonds, the company issuing the bonds has the right to redeem the bond before the maturity date if it wishes to.

Puttable bonds

When you invest in a puttable bond, you have the right to sell the bond back to the issuer before maturity.

Investment-grade bond

Investment-grade bonds are issued by financially strong companies that carry a low risk of default but offer low returns as well. These bonds generally have a good credit rating, showing the company’s capability to repay the debt.

High-yield bond

High-yield bonds, also known as junk bonds, are issued by companies having low credit ratings. These bonds provide higher returns to compensate for the high default risk borne by the bondholders.

Long-term loans from banks

Another way companies fulfil capital requirements is by borrowing from banks and HNIs (high net worth individuals). Most companies prefer to issue corporate bonds over obtaining a loan, as banks charge higher interest rates.

Does a company's debt matter to investors?

Before you invest in a company, you must know the company’s debt levels. Debt can be a bane or boon for a company. When used wisely, it helps companies expand and grow their operation, which increases future earning capabilities.

But high debt translates to high interest payments, which chip away at the company’s profit, bringing down its net profit, and thereby, its general reserve.

How debt impacts stock price

Low interest payments translate to companies having more profit to reinvest in their company’s expansion and growth. Hence, when companies have high debt, investors view it as a risky investment, as interest payments are high.

So, should you not invest in companies that have debt?

No, the key is to examine a company's debt level and how it utilizes it to increase future profit. It’s wise to invest in companies that aim to reduce their reliance on equity and debt.

Example: From 2014 to 2023, Tata Motors had high debt levels that kept rising, which increased interest payments and lowered profit.

But March 2023 onwards, Tata Motors significantly reduced its debt, boosting its share price. A share price that would usually trade between ₹400 to ₹550 saw a steady rise and hit a peak of ₹118.30 for the first time in 10 years! Surely other factors must have contributed to this phenomenon, but reducing debt levels is definitely one of them.

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So debt isn’t bad, how a company handles it determines what impact it has on the company and on its share price.

To understand important concepts like corporate debt and factors influencing share price, sign up on UpLearn by Upstox Today!

About Author

author image

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.

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