PSU Bonds

What are PSU BONDS?

• PSU Bonds are medium and long term obligations issued by public sector companies in which the government shareholding is generally greater than 51%.

• It is suggested to always check the credit rating and nature of bonds. Make sure the credit rating, Investment nature, underlying security and maturity aligns with your Investment needs.

Who issues PSU BONDS?

• PSU Bank, power sector companies, railways etc issues PSU bonds as they constitutes 51% of the government shareholding with them.

• These entities could be held by central or state government.

Key Features

• Higher interest rate than FDs.

• Generally , these bonds are taxable as per individual income tax slab.

• Low default risk as they backed by the Government.

Are PSU Bonds safe?

• The high-yielding PSU debt comes in the category of perpetual bonds held by PSU banks. These are certainly at high risk as they can be written down when the bank’s capital falls below specific thresholds. The bank does not have to be insolvent for the bonds to be written down. The bank can be bailed out, as what happened with Yes Bank.

Why you should Invest in PSU bonds?

• Low-risk

  If you have a low risk taking capacity, you should opt for banking and PSU bonds. Simply because the units belong to PSU companies and banks, which are supported and run by the government.

• Suitable for High-income taxpayers

  Taxation is the main reason for you to opt for PSU bonds over Credit risk funds. Investors, who continue to hold profits of bonds beyond three years, usually have to pay long term capital gains tax of 20% with indexation benefit. However, if you continue to hold PSU bonds for less than three years, you will have to pay short-term capital gains tax according to your income slab.

• Stable yields

  PSU bonds remain Invested in the mid segment of the yield curve in the 2-4 years. This segment accounts to have stable yields with much lower volatility levels with respect to the long-term debt funds. Keeping in view of the interest rate, Investors are recommended to have major chunks of their fixed Investment allocation in these products. The annual returns offered in PSU bonds are at the rate of 8% to 9%.

• Long-term Investment

  Keep Investing in PSU bonds for a longer duration as it will yield you relatively better returns subject to price fluctuations in the market.

• No difficulty in Investing Investors do not need to have any market knowledge on interest movements if they want to Invest in PSU bonds and don’t have to be anxious about tracking. You can Invest freely in PSU bonds whenever you want.