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List of NBFC Bonds

Its name itself is a clear indicator of the meaning of NBFC bonds. NBFC bonds are those issued by Non-Banking Financial Companies (NBFCs). NBFCs have a lending business that is similar to that of banks. However, unlike banks, NBFCs can only accept term deposits if approved by the Reserve Bank of India (RBI). Therefore, they use different means to get funds for lending. This is where NBFC bonds step in. Usually, the interest rate offered by an NBFC bond is on the higher end, yet it depends on their respective credit ratings.

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NameIssue SizeMaturityCoupon
Kotak Mahindra Prime LimitedCRISIL AAAINE916D08DT240.00Cr22 Jun 202310.50 %
HDB Financial Services LimitedCRISIL AAAINE756I08041100.00Cr17 Oct 202310.20 %
HDB Financial Services LimitedCRISIL AAAINE756I0806680.00Cr18 Mar 202410.19 %
Tata Capital Financial Services LimitedCRISIL AAAINE306N08029100.00Cr26 Sep 202410.15 %
Bajaj Finance LimitedCRISIL AAAINE296A08714500.00Cr19 Sep 202410.15 %
HDB Financial Services LimitedCRISIL AAAINE756I0805850.00Cr20 Dec 202310.05 %
Tata Sons Private LimitedCRISIL AAAINE895D07446300.00Cr20 Mar 20249.90 %
Sundaram Finance LimitedCRISIL AAAINE660A08BR0100.00Cr12 Nov 20249.80 %
ICICI Securities Primary Dealership LtdCRISIL AAAINE849D08TT150.00Cr17 May 20249.80 %
Sundaram Finance LimitedCRISIL AAAINE660A08BQ225.00Cr10 Nov 20249.80 %

Who Issues 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?

Benefits of NBFC Bonds

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.

Drawbacks of NBFC Bonds

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.

How to Calculate Yields of NBFC Bonds?

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:

ParticularsValues
Face Value  ₹1,000
Annual Coupon Rate  7%
Annual Interest Payout  ₹70
Time to Maturity  5 years
Current Market Value of the Bond  ₹850

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.

How are NBFC bonds taxed?

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.

Who Should Invest in NBFC Bonds?

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.

FAQs about NBFC Bonds

What are NBFC bonds?

NBFC bonds are securities issued by NBFCs (Non-Banking Financial Companies). Several kinds of NBFC bonds include CPs (Commercial Papers), MLDs (Market Linked Debentures), and NCDs (Non-Convertible Debentures).

Is it good to invest in NBFC in India?

NBFC bonds with AAA credit ratings are deemed to be safe. However, still, they are not entirely risk-free. Therefore, you must assess your investment objectives, time horizon, and risk tolerance before investing in them.

What is the difference between bank FD and NBFC FD?

Bank FDs (Fixed Deposits) are deemed to be safer than NBFC FDs. This is because even if the banks are likely to default, there is insurance available from DICGC (Deposit Insurance and Credit Guarantee Corporation) worth ₹5 lakhs per bank. However, there is no such safety net available to NBFC FDs.

Is 5-year FD tax-free?

The 5-year tax saving FDs allow you to deduct ₹1.5 lakhs under section 80C of the Income Tax Act of 1961. However, the interest earned on these FDs is added to your income and is taxed as per individual tax slabs.

Is TDS deducted on private bonds?

TDS (Tax Deducted at Source) of 10% applies to NBFC bonds.
Disclaimer: The facts and information on this page are for information and awareness purposes only. No information provided here is intended towards any specific user and should not be construed as investment advice or a recommendation of any kind whatsoever. You are requested to consult with your professional investment advisor or tax advisor for specific directions on any investments in any securities including the bonds mentioned on this page before making any investment decision. Wint Wealth shall not be liable for any losses incurred by you based on an investment decision utilising the information on this page.