Start earning 9-11% fixed returns with bonds that are carefully curated.
Perpetual bonds, or perpetual securities or perpetuities, are long-term debt instruments with no maturity date. They indefinitely pay a fixed interest rate to bondholders if the bond remains outstanding. This means that the bond's principal amount is never repaid, and the bond continues to generate interest income for the investor indefinitely. However, there are a few perpetual bonds that have call options. This means that the issuer can anytime call the bond.
|HDB Financial Services Limited||200.00Cr||31 Dec 9999||9.40 %|
|HDB Financial Services Limited||150.00Cr||31 Dec 9999||9.15 %|
|HDB Financial Services Limited||100.00Cr||31 Dec 9999||8.70 %|
|HDFC Credila Financial Services Limited||100.00Cr||30 Aug 9999||8.36 %|
|HDFC Credila Financial Services Limited||200.00Cr||31 Jan 9999||8.15 %|
|REC Limited||558.40Cr||31 Dec 9999||7.97 %|
|Axis Finance Limited||200.00Cr||31 Dec 9999||7.90 %|
|Axis Finance Limited||50.00Cr||31 Dec 9999||7.76 %|
|HDB Financial Services Limited||150.00Cr||31 Dec 9999||7.68 %|
|ICICI Bank Limited||3000.00Cr||31 Dec 9999||9.90 %|
Perpetual bonds are typically issued by governments, financial institutions, banks, and corporations seeking long-term financing. Governments often issue perpetual bonds to finance infrastructure projects or manage their budget deficits. At the same time, corporations and financial institutions may use them to strengthen their capital structure or meet regulatory requirements.
Banks issue these bonds as Additional Tier I (AT 1) bonds. In the case of liquidation, perpetual bondholders will get the payment just before equity investors. Moreover, banks only pay interest on these bonds out of the current year's profit. If banks are not profitable, they avoid paying the interest on these bonds.
Perpetual bonds pay a fixed coupon or interest rate to bondholders at regular intervals, usually annually or semi-annually. The coupon rate is predetermined at issuance and remains constant throughout the bond's life. These investment options are more attractive to people who want a regular fixed income, as investors can receive the interest payments on these bonds as long as they hold the bond. Though these are relatively safe investment options, credit risk is still there. Yes bank is the classic example of it.
Calculating the yield of perpetual bonds is essential for investors to assess their potential returns.
Before diving into the calculations, the following information is required:
Annual coupon rate: The fixed interest rate offered by the perpetual bond.
Market price: The current market price at which the perpetual bond is trading.
To calculate the yield of a perpetual bond, use the formula:
Yield (%) = (Annual Coupon payment / Market Price) x 100
Calculation of yield
Let's understand the calculation of the yield by examples:
Here let's assume the Face Value (FV) of the bond ₹1,000
|Annual Coupon Rate||Market Price||Yield Calculation||Yield(%)|
The above table clearly shows the relationship between bond prices and yields. As and when the bond prices rise, yields fall and vice versa. They have an inverse relationship.
Perpetual bonds can suit various investors, depending on their investment goals and risk appetite. Here are a few types of investors who might consider investing in perpetual bonds:
However, it is essential for investors to carefully evaluate their investment objectives and risk tolerance and conduct thorough research before investing in perpetual bonds or any other financial instrument.