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List of Private Bonds

Private bonds, or private placement bonds, are those that are issued to select investors or institutions. This is the exact opposite of public placement bonds. Therefore, in the case of private bonds, the company does not need to file the offer document with the Securities and Exchange Board of India (SEBI) for issuing the bond. Such bonds save a lot of effort on the part of the company due to lower paperwork. However, private bonds are regulated by the SEBI.

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NameIssue SizeMaturityCoupon
NTPC LimitedCRISIL AAAINE733E07CB1140.00Cr06 Nov 202311.25 %
Kotak Mahindra Prime LimitedCRISIL AAAINE916D08DT240.00Cr22 Jun 202310.50 %
Poonawalla Fincorp LimitedCRISIL AAAINE511C08AD315.00Cr06 Jan 202710.40 %
Poonawalla Fincorp LimitedCRISIL AAAINE511C08AE125.00Cr24 Jan 202710.40 %
Poonawalla Fincorp LimitedCRISIL AAAINE511C0898535.00Cr07 Dec 202610.40 %
Poonawalla Fincorp LimitedCRISIL AAAINE511C08AG615.00Cr03 Mar 202710.25 %
Poonawalla Fincorp LimitedCRISIL AAAINE511C08AK85.00Cr06 Jun 202510.20 %
HDB Financial Services LimitedCRISIL AAAINE756I08041100.00Cr17 Oct 202310.20 %
HDB Financial Services LimitedCRISIL AAAINE756I0806680.00Cr18 Mar 202410.19 %
Tata Capital Housing Finance LimitedCRISIL AAAINE033L0817148.00Cr26 Sep 202410.15 %

Who Issues Private Bonds?

Generally, private corporations issue these bonds as the compliance formalities are relatively easier. As it is available for select investors, it can be structured according to the needs of investors. According to the Income Tax Act of 1961, “While adopting the private placement route to issue the bonds, each entity shall adopt the book building approach except for those mentioned in sub-paragraph (2) except as per regulation II of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations 2008, wherein bids shall be sought on the coupon rate subject to a ceiling specified by the entity and the allotment shall be made at the price bid.”

Sub-paragraph (2): “The issuers shall earmark suitable amounts within their private placement allocation for placing with Sovereign Wealth Funds, Pension and Gratuity Funds without the requirement of book building procedure:

Provided that in the event of any non-response, the issuers shall be free to offer the un-subscribed amount through book building route under private placement in the domestic market.”

Benefits of Private Bonds

Private bonds have several benefits, as discussed below:

  • The company can save time and effort due to lower paperwork requirements.
  • Although the SEBI regulates these bonds, the company does not need to file offer documents.
  • These bonds are issued to select investors. They also need higher compliance formalities. Hence, the structure of these bonds can be highly customisable.

Drawbacks of Private Bonds

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

  • The default risk can be higher due to the lower compliance involved.
  • Researching these bonds can be challenging as no offer document is filed with the SEBI.
  • Liquidity can be a concern for these bonds, as they are issued only to select investors.

How to Calculate Yields of Private 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 private bonds taxed?

Private bonds are taxed similarly to other debt securities excluding tax-saving bonds. Any interest the investors earn on the private bonds is taxed as per the individual tax slabs.

Any period above 36 months is considered long-term for private bonds. Hence, those gains arising before the 36 months are deemed Short-Term Capital Gains (STCG). Else, it is regarded as a Long-Term Capital Gains Tax (LTCG).

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

Who Should Invest in Private Bonds?

For those looking who wish to take additional risk than fixed deposits, for those extra returns can invest in private bonds. Moreover, those not concerned about credibility can invest in private bonds, although SEBI regulates them. Moreover, the minimum face value, as prescribed by SEBI, is ₹1 lakh for private bonds, while the same is ₹1,000 for public bonds. However, a fixed deposit is sensible if you are looking for a safer option.

FAQs about Private Bonds

What are private bonds?

Private bonds, or private placement bonds, are issued by companies to select investors, usually HNIs (High Networth Individuals) or institutions, without needing to file offer documents to the SEBI (Securities and Exchange Board of India).

Who buys private bonds?

These bonds are available only to select investors, so the minimum ticket size is higher. Therefore, usually, institutional investors and HNIs invest in them.

What is the minimum face value of private bonds?

According to the recent changes made by the SEBI, the minimum face value of private bonds is ₹1 lakh from January 1, 2023. This was ₹10 lakhs earlier.

Who issues private bonds in India?

In India, private companies issue private bonds as it involves less paperwork and compliance formalities.

Is TDS deducted on private bonds?

TDS (Tax Deducted at Source) of 10% applies to private 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.