What are PSU Bonds?

Introduction

Investment is an essential aspect of long-term wealth creation. However, not everyone has the risk appetite for investing in equity and other market instruments. When it comes to secure investment avenues, fixed deposits are a popular choice but do not always yield inflation-beating returns. For risk-averse investors, Public Sector Undertaking Bonds (PSU Bonds) offer an attractive investment opportunity. PSU Bonds provide a wide variety of options for building an ideal investment portfolio. A detailed understanding of the bonds is essential to ensure the safety of the investment. This article aims to answer questions such as “what are PSU bonds?”, what are their potential risks and benefits, and so on.

What Are PSU Bonds?

Public Sector Undertaking bonds are issued by government sector companies and undertakings. The Government of India and/or the state government(s) hold at least 51% or more shares in public sector undertakings.

These PSU bonds represent a loan between citizens as investors and the government corporation as the issuer. The issuer pays the interest at regular intervals and repays the principal amount at the bonds’ maturity date. It is recommended to check a few things, such as credit rating, one’s investment goals, Interest Rates along with frequency, before investing in any bond.

PSU Bonds can be bought in primary issuance or in the secondary market. They can be held in your demat account and are easily tradeable or transferable.

PSU Bonds in India Key Features

Liquidity:

PSU Bonds are highly liquid and are easily tradable.

Safety:

These are relatively safer than High Yield Bonds as they have a high credit rating and are very unlikely to get defaulted.

Tenor:

PSU is a great investment option if you are looking at investing for a longer period as they have a 10-15 years tenor.

High Credit Rating:

The most important feature of PSU bonds is that it has a high credit rating as it gives the comfort of security for your investments.

The above features make PSU bonds a safe investment avenue. As more investors are becoming aware of these advantages, they have started investing in these bonds given their minimal credit risk but attractive interest rates.

Why should you invest in PSU bonds? 

PSU bonds have become a preferred choice for new investors as they feel safer with the backing of a government undertaking. A search for a list of the best PSU Bonds in India will throw up numerous larger government undertakings offering the same. Here is a list of popular PSU bonds issued in India:

• Rural Electrification Corporation (REC)
• Power Finance Corporation (PFC)
• Indian Railways Finance Corporation (IRFC)
• Food Corporation of India (FCI)
• Nuclear Power Corporation (NPC)
• National Thermal Power Corporation (NTPC)
• Power Grid Corporation of India (PGC)
• National Highways Authority of India (NHAI)
• Housing and Urban Development Corporation (HUDCO)
• India Infrastructure Finance Company (IIFC)
• Mahanagar Telephone Nigam Limited (MTNL)
• NHPC Limited
• Indian Oil Corporation (IOC)
• Bharat Petroleum Corporation Limited (BPCL)
• Oin and Natural Gas Corporation (ONGC)
• Steel Authority of India (SAIL)
• Gas Authority of India (GAIL)
• National Housing Bank (NHB)
• Export Import Bank of India (EXIM)
• State Bank of India (SBI)
• Punjab National Bank (PNB)
• Bank of Baroda (BOB)

Advantages of PSU bonds for investors

• PSU bonds carry lower risk than other investment avenues.
• One can nullify even the market-related risks by holding them until the bonds’ issued maturity date.
• They provide substantial yield at a fixed interest rate until maturity.
• Investing in bonds is a kind of regular income for investors. They can grab the opportunity of interest earnings by investing their idle funds.
• PSU bonds provide a steady level of income. One’s invested capital should be a great predictable cash flow with such high-quality bonds. 
• These public sector undertaking bonds offer diversification and the means to reduce portfolio risk and increase returns.
• Investing in bonds is not rocket science. One does not need any market knowledge to make their move in the investment world. With little research, even novice investors can try their hands at investing in bonds without any professional help.

Conclusion

A robust investment strategy can result in predictable cash flow and contribute to long-term wealth creation. As discussed above, Public Sector Undertaking bonds provide predictable returns, a better yield and less market risk. PSU Bonds are therefore considered a reliable investment avenue. While they are not completely risk-free, PSU bonds have much lower risk as compared to other market instruments.

Browse through the PSU bond list to find some of the top PSUs in India offering lucrative returns and invest online with ease in a matter of minutes.

FAQs

1. Why should investors invest in PSU bonds?

PSU bonds are an excellent investment avenue for all categories of investors. Investors who usually have a conservative approach to investing and who prefer a regular, predictable source of income can consider PSU Bonds as they help you earn higher returns in comparison to Fixed Deposits and also safeguard your investments from the volatilities that are usually seen in equity markets. Moreover, investing in bonds in general is a great way of diversifying our portfolio thereby mitigating the possibilities of risks.  

2. Are PSU bonds safe?

As PSU bonds are issued by government-owned undertakings, they are relatively much safer than other investment options.

3. Are PSU bonds better than FDs?

While both FDs and PSU bonds are relatively safe investment instruments, bonds offer higher returns as compared to fixed deposits. Therefore, PSU bonds may be better than FDs in many aspects such as higher interest rate and liquidity to name a few.

Disclaimer: Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.