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List of Perpetual Bonds

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.

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NameIssue SizeMaturityCoupon
HDB Financial Services LimitedCRISIL AAAINE756I08157200.00Cr31 Dec 99999.40 %
HDB Financial Services LimitedCRISIL AAAINE756I08165150.00Cr31 Dec 99999.15 %
HDB Financial Services LimitedCRISIL AAAINE756I08199100.00Cr31 Dec 99998.70 %
HDFC Credila Financial Services LimitedCRISIL AAAINE539K08229100.00Cr30 Aug 99998.36 %
HDFC Credila Financial Services LimitedCRISIL AAAINE539K08237200.00Cr31 Jan 99998.15 %
REC LimitedCRISIL AAAINE020B08DL4558.40Cr31 Dec 99997.97 %
Axis Finance LimitedCRISIL AAAINE891K08083200.00Cr31 Dec 99997.90 %
Axis Finance LimitedCRISIL AAAINE891K0811750.00Cr31 Dec 99997.76 %
HDB Financial Services LimitedCRISIL AAAINE756I08231150.00Cr31 Dec 99997.68 %
ICICI Bank LimitedCRISIL AA+INE090A08UC23000.00Cr31 Dec 99999.90 %

Who Issues These Bonds?

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.

How do Perpetual Bonds Work?

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.

What Are the Features of Perpetual Bonds?

  • No maturity date: Perpetual bonds have no fixed maturity, making them unique among debt instruments.
  • Fixed coupon rate: These bonds offer a fixed interest rate, providing investors with a predictable income stream.
  • Call option: Some perpetual bonds come with a call option, allowing the issuer to redeem the bonds after a specified period. This gives the issuer flexibility in managing their debt.
  • Subordinated status: Perpetual bonds often have a subordinated status, meaning that in liquidation or bankruptcy, they are repaid after other debt obligations.

Advantages of Perpetual Bonds

  • Stable income: Perpetual bonds offer a steady income stream through fixed interest payments.
  • Portfolio diversification: Investing in perpetual bonds can diversify an investor's portfolio by adding an instrument with unique characteristics.
  • Higher yield: Perpetual bonds generally offer higher yields than traditional bonds, compensating investors for the absence of a maturity date.
  • Potential capital appreciation: If interest rates decline, the value of perpetual bonds may increase, providing capital appreciation for investors.

Disadvantages of Perpetual Bonds

  • No principal repayment: Unlike traditional bonds, perpetual bonds do not have a maturity date, and the principal amount is not repaid. This lack of principal repayment may not suit investors seeking to achieve financial goals.
  • Interest rate risk: Perpetual bond prices are sensitive to changes in interest rates. When interest rates rise, the value of existing perpetual bonds may decline.
  • Call risk: Some perpetual bonds come with a call option, allowing the issuer to redeem the bonds. This introduces the risk that the bonds may be called, cutting off future interest income for investors.

How to Calculate the Yield of Perpetual Bonds?

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 RateMarket PriceYield CalculationYield(%)
14.5%₹2,200(145 /2200)6.59%

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.

Who Should Invest in These Bonds?

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:

  • Income-oriented investors: Perpetual bonds provide a stable income stream, making them attractive to investors seeking regular interest payments.
  • Risk-tolerant investors: Perpetual bonds carry certain risks, such as interest rate and call risk. Investors willing to bear these risks may find perpetual bonds appealing.
  • Long-term investors: As perpetual bonds have no maturity date, they are suitable for investors with a long-term investment horizon who can hold the bonds for an extended period.
  • Diversification seekers: Investors looking to diversify their portfolios can consider adding perpetual bonds to gain exposure to a unique asset class.

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.

FAQs about Perpetual Bonds

Can perpetual bonds be redeemed before maturity?

Some perpetual bonds come with a call option, allowing the issuer to redeem the bonds after a specific period. However, not all perpetual bonds have this feature.

What are the tax implications of perpetual bonds?

The annual coupon payment is added under the head of other income and taxed as per the individual slab rate. Investors are subject to long-term capital gain if they sell it in the secondary market.

Are perpetual bonds traded on stock exchanges?

Yes, you can trade perpetual bonds on stock exchanges. This increases its liquidity.

Are perpetual bonds riskier than traditional bonds?

Perpetual bonds carry higher risk compared to traditional bonds. Even though issuers of perpetual bonds have high creditworthiness, they can skip payments of interest due to capital falling below required levels. This makes perpetual bond a risky option.

Are perpetual bonds suitable for conservative investors?

Perpetual bonds may not be suitable for conservative investors seeking capital preservation, as they lack principal repayment. Conservative investors may prefer bonds with fixed maturity dates.
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.