List of NBFC Bonds

Non-Banking Financial Banks, or NBFCs, issue these bonds to retail and institutional investors. They can issue various kinds of bonds, such as Commercial Papers (CPs), Non-Convertible Debentures (NCDs), and Market Linked Debentures (MLDs).

Also Read: Which NBFCs Does Wint Wealth Choose to Work With?

NBFC bonds have several benefits, as discussed below:

• NBFC bonds usually pay higher interest than bank fixed deposits.
• Presently the NBFCs that issue these bonds are reputed and well-capitalised, carrying higher credit ratings. Hence, it makes them a credible investment.
• NBFC bonds are regulated by the Reserve Bank of India (RBI), making them relatively less risky.

As every coin has two sides, so do NBFC bonds. Below we have listed a few drawbacks of NBFC bonds:

• Although they carry higher credit ratings or are regulated by the RBI, NBFC bonds are risky. They do carry risks such as interest rate risk, reinvestment risk, and so on.
• Moreover, as the chief purpose of issuing these bonds is to further lend to borrowers, they inherently carry credit risk.

A yield is a number that shows the returns of any bond. Many times it is referred to as Yield to Maturity (YTM). You receive interest payments based on the coupon rate. You can calculate the YTM using the below formula:
YTM = [Annual Interest + {(FV - Price)/Maturity}]/[(FV+Price)/2]

Where,

YTM = Yield to Maturity
Annual Interest = Coupon payment that you receive annually.
FV = Face Value
Price  = Current Market Price of the Bond
Maturity = Number of years left till maturity

Let’s take an example to understand it better. Assume you invest in a bond having the following characteristics:

So, if we plug in all the values in the above formula, the YTM for the bond in the example works out to be 10.8%:

YTM = [70 + {(1000-850)/5}] / [(1000+850)/2]

However, if we change the bond's current market value to ₹1,100, the YTM is 4.8%. From this, we can understand the relationship between YTM and bond prices. As and when YTM increases, bond prices decrease and vice versa.

However, a lot of people often confuse YTM with coupons. A coupon is a predetermined rate when you buy the bond, while the YTM is the prevailing market rate of the bond.

NBFC bonds are taxed similarly to other debt securities excluding tax-saving bonds. In the case of NBFC bonds, any interest earned is taxed as per the individual tax slabs.

For listed NBFC bonds, any period above 12 months is considered long-term. Hence, those gains arising before the 12 months are deemed Short-Term Capital Gains (STCG). Otherwise, it is regarded as a Long-Term Capital Gains Tax (LTCG). If the same are unlisted, then the period is 36 months.

In the case of STCG, the gains are added to the investor’s income and taxed as per individual tax slabs. In the case of LTCG, gains are taxed at 10% without indexation benefit if listed and 20% without indexation benefit if unlisted, plus any surcharge. Moreover, even the Tax Deducted at Source (TDS) of 10% applies.

These bonds might be suitable for those who have a high-risk appetite and are seeking higher returns. However, if you are someone for whom safety is the top priority, you should consider bank fixed deposits. This certainly depends upon the individual’s risk appetite and financial goal.