Start earning 9-11% fixed returns with bonds that are carefully curated.
Secured bonds are those that are issued by attaching assets as collaterals. An example would help you understand the concept better. Let’s assume that a real estate company issues a secured bond. Such companies usually secure these bonds using the properties that they own. So, if the company cannot repay the amount raised via bonds, it will end up selling off the property they own to pay its bondholders.
Name | Issue Size | Maturity | Coupon |
---|---|---|---|
NTPC Limited | 140.00Cr | 06 Nov 2023 | 11.25 % |
Tata Sons Private Limited | 300.00Cr | 20 Mar 2024 | 9.90 % |
LIC Housing Finance Limited | 1000.00Cr | 19 Mar 2024 | 9.80 % |
Jamnagar Utilities & Power Private Limited | 2000.00Cr | 02 Aug 2024 | 9.75 % |
Tata Sons Private Limited | 305.00Cr | 13 Jan 2024 | 9.74 % |
Tata Sons Private Limited | 237.00Cr | 13 Dec 2023 | 9.71 % |
L&T Infra Credit Limited | 95.00Cr | 10 Jun 2024 | 9.70 % |
India Infradebt Limited | 165.00Cr | 28 May 2024 | 9.70 % |
NTPC Limited | 5.00Cr | 23 Dec 2030 | 9.67 % |
NTPC Limited | 5.00Cr | 23 Dec 2031 | 9.67 % |
Secured bonds are issued by private companies and Public Sector Undertakings (PSUs). However, government bonds are unsecured as assets do not back them but are backed by the Sovereign credit rating.
Secured bonds have several benefits, as discussed below:
As every coin has two sides, so do secured bonds. Below we have listed a few drawbacks of secured 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:
Particulars | Values |
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, then the YTM works out to be 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.
Secured bonds are taxed similarly to other debt securities excluding tax-saving bonds. Any interest the investors earn on the secured bonds is taxed as per the individual tax slabs.
Any period above 12 months for listed secured bonds is considered long-term, and the same for unlisted secured bonds is 36 months. Any gain before the abovementioned period is deemed Short-Term Capital Gains (STCG). Otherwise, it is considered 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 10% without indexation for listed and 20% without indexation benefit for unlisted, plus any surcharge.
For those looking to earn relatively higher returns than fixed deposits by taking relatively higher risk, secured bonds are for you. However, for people who cannot compromise on safety, even if it means lower returns, then fixed deposits are better.