Perpetual Bonds: Earn Fixed Returns Forever!
Perpetual Bonds: Earn Fixed Returns Forever!
Explore perpetual bonds that will bring you interest forever. Check out the different characteristics of perpetual bonds in India.
Explore perpetual bonds that will bring you interest forever. Check out the different characteristics of perpetual bonds in India.
Explore Perpetual bonds
What Are Perpetual Bonds?
Perpetual bonds are a form of secured bond investment that does not have a maturity date. Due to this characteristic, it is often treated as an amalgamation of equity and debt. Perpetual bonds, called ‘perps’, pay interest as coupon payments in perpetuity.
Banks, financial institutions, and governments are usually the issuers of these bonds. The motive for issuing these bonds may depend on the issuer's needs. This could include long-term capital appreciation or even funding significant requirements.
These bonds yield perpetual interest payments. Therefore, despite the non-payment of principal, these bonds are considered a lucrative investment for investors who are looking to generate a source of long-term income.
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List of Perpetual Bonds in India
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How Do Perpetual Bonds Work?
The main function of a perpetual bond is to provide interest to the bondholder for an indefinite period. Since no maturity date is given, there is also no date for the redemption of the bond. These coupon payments are fixed and are paid out in timely intervals.
The investor or the bondholder agrees to receive fixed coupon payments indefinitely, which are paid by issuer of the perpetual bond. The bond issuer gains from these bonds as they can utilise the funds for their core financing needs without worrying about clearing the principal payment.
One important aspect of these perpetual bonds is the call option that is embedded in the instrument. The issuer has the right but not an obligation to call or redeem the bond at any time after a certain period, usually five years from the issue date. Therefore, issuers may redeem their perpetual bonds at some point. This means the time of redemption maybe flexible, in accordance with the issuer’s discretion.
Due to its features of perpetual coupons and no principal repayment, a perpetual bond is similar to an annuity. An annuity is a formal contract that offers a steady income stream to investors in fixed intervals.
In the event of the death of the bondholder, the bond can be transferred to legal heirs, who will then be entitled to the coupons.
Who Issues Perpetual Bonds?
Perpetual bonds are issued by institutions like banks, governments, or corporations. The main rationale behind issuing these bonds is to source long-term financing. However, each issuer may have its reasons for issuing these bonds.
Perpetual bonds are classified under Additional Tier 1 bonds in the capital structure of banks. Therefore, if banks file for liquidation, these bonds will be paid off after settling all other debts but before equity. However, in events when the bank's financial condition degrades below a certain threshold, these bonds may lose their value or even get completely written off.
Governments may also issue these perps to fund long-term infrastructure projects or raise capital.
Big corporations also often issue these perpetual bonds to cater to their long-term financial projects or reduce their existing loans. However, the credit ratings of these corporations need to be strong.
Key Features Of Perpetual Bonds
Perpetual bonds have these characteristics:
Infinite Coupon Payments
Perpetual bonds come with the unique feature of providing indefinite coupon payments to the bondholder at fixed intervals. The bondholder continues to receive these payments for eternity.
Embedded Call Option
Without a maturity date in perps, a bond issuer typically embeds a call option in the bond so they can redeem the bond after a certain period or if certain conditions are met. This may be five or ten years from the date of issue. This also helps in promoting liquidity for the issuer.
No Principal Repayment
Repayment of the principal amount is not required in perpetual bonds. The key attribute of perpetual bonds is that they continue forever. Therefore, the investor or the bondholder may never receive their principal amount. This may pose a significant risk unless offset by consistent long-term coupon payments
No Yield To Maturity
Yield to maturity is the total yield an investor expects to generate on a bond if held till maturity. However, since there is no maturity date in a perpetual bond, no yield to maturity can be determined either.
Advantages Of Investing In Perpetual Bonds
Perpetual bonds provide the following advantages to their investors:
Reliable Income
The unique feature of no maturity date in perpetual bonds allows the investors to receive indefinite coupon payments consistently. This stream of cash flows is beneficial for investors looking for steady, consistent income. These bonds can be a potential option for retirement planning.
No Market Risk
Since these perpetual bonds are debt instruments, they do not have any market risk. They may, however, involve interest rates or credit risk.
Diversification
Including these perpetual bonds in your portfolio can amplify diversification benefits. Since these bonds have different risk and return attributes compared to other equity as well as debt securities, portfolio diversification can be achieved.
Higher Yields
To compensate for the lack of redemption of principal in these perpetual bonds, issuers often offer a higher coupon rate. Therefore, these bonds can offer attractive returns for investors who agree to take on additional risk associated with non-payment of principal.
Disadvantages Of Investing In Perpetual Bonds
Perpetual bonds may involve the following disadvantages or risks:
Credit Risk Of The Issuer
Perpetual bonds include credit risk. In case the issuer of the bond becomes bankrupt, you may not be able to receive further interest payments. Moreover, a downgrade in the issuer’s credit rating may also affect the stream of payments and the bond’s value. The risk of default often pertains to these perpetual bonds.
Interest Rate Risk
Interest rate risk is the possibility of losing a bond’s value due to fluctuations in interest rates. As interest rates increase, the bond’s value falls since the attractiveness of a lower-yielding bond falls. Alternatively, if the interest rates fall, the bond’s value increases. This is due to the inverse relationship observed in bonds and interest rates.
Risk From Call Option
The call option embedded in perpetual bonds allows issuers to call the bond after a while. This leads to an increased call risk for the investors. This feature is especially risky during phases when interest rates fall, as issuers may avail the call option to redeem and reissue the bond at lower interest rates.
Perpetual Bonds In The Indian Market
In India, generally banks are issuing perpetual bonds as compared to governments or corporations. These are called Additional Tier-1 Bonds or AT-1 bonds when issued by banks. These bonds aim to raise funds for their financing requirements.
Some of the perpetual bonds with the highest coupon rates in India are:
Issuer Name
Coupon Rate
The South Indian Bank Ltd.
13.75%
Srei Equipment Finance Ltd.
12.5%
Poonawalla Fincorp Limited
12.1%
Muthoot Fincorp Limited
12%
TVS Credit Services Ltd.
11.5%
Regulatory Framework For Perpetual Bonds In India
The Reserve Bank of India (RBI) authorises and regulates banks to issue perpetual bonds in the country. This is guided in compliance with BASEL III capital adequacy norms. The Securities & Exchange Board of India may alter regulations related to the call option feature in these bonds from time to time. Overall, RBI regulates AT1 bonds issued by banks. SEBI oversees the market practices for such securities traded on exchanges.
Who Should Consider Investing In Perpetual Bonds?
Perpetual bonds are susceptible to higher risks, therefore, are more suitable for high-risk investors. In general, perpetual bonds are more suitable for:
Income-Focused Investors
These perpetual bonds are suitable for those who are seeking stable income. Therefore, it is ideal for retirees who are looking for retirement support.
Long-Term Investors
Since principal repayment is unlikely, long-term holding is crucial to benefit from cumulative coupon payments. This is recommended to ensure that the investor can recover the amount of principal through interest payments in the long run.
Large Institutional Investors
Given the higher risk involved, these bonds are typically more suitable for institutional investors. Usually, large institutional investors in need of steady income invest in these bonds. Insurance companies commonly invest in these bonds to earn long-term coupon payments for steady revenue.
Additionally, investors who prefer diversifying their portfolios or are willing to invest in high-yielding debt instruments can also consider investing in these perpetual bonds.
How To Invest In Perpetual Bonds In India
Follow the steps below to understand how to buy perpetual bonds in India:
Do your Research
Firstly, understand the perpetual bonds market in India. Go through the list of issuers of these bonds, primarily banks, in India.
Check Credit Ratings
Assess the creditworthiness of the issuer before selecting the right bond.
Compare Interest Rates
It is crucial to compare interest rates across different bond issuers. The one paying the maximum interest rate can be considered.
Select A Platform
You can buy perpetual bonds directly from banks. Many banks issue perpetual bonds, especially as Additional Tier 1 (AT1) bonds. Apart from this many brokers or online platforms provide bond investments through their platforms. You must select a regulated OBPP like Grip for your bond investments. Additionally, Some government entities also issue perpetual bonds, which can be purchased through authorized channels.
Conclusion
Perpetual bonds offer indefinite coupon payments, attractive yields, and portfolio diversification. However, it may be challenging to understand given its unique features of non-payment of principal, high credit, and interest rate risk. Despite the challenges and risks, it is suitable for investors looking for long-term, steady income, portfolio diversification. Before investing in these perpetual bonds, it is crucial to research the varying issuers and their creditworthiness.
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FAQ's on Perpetual Bonds
Who should invest in perpetual bonds?
Who should invest in perpetual bonds?
Who should invest in perpetual bonds?
Can perpetual bonds be redeemed before maturity?
Can perpetual bonds be redeemed before maturity?
Can perpetual bonds be redeemed before maturity?
What are the tax implications of perpetual bonds?
What are the tax implications of perpetual bonds?
What are the tax implications of perpetual bonds?
Can perpetual bonds be sold in the secondary market?
Can perpetual bonds be sold in the secondary market?
Can perpetual bonds be sold in the secondary market?
Are perpetual bonds suitable for all investors?
Are perpetual bonds suitable for all investors?
Are perpetual bonds suitable for all investors?
How is the yield of a perpetual bond calculated?
How is the yield of a perpetual bond calculated?
How is the yield of a perpetual bond calculated?
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Grip Invest is a SEBI-regulated platform for high-yield, fixed-income investments like Corporate Bonds and SDIs. Our mission is to enable all Indians to invest in regulated, curated, diversified opportunities offering attractive, predictable returns.
Grip Broking Private Limited
Grip Broking Private Limited (U67120DL2023PTC410290), Member of NSE- SEBI Registration No.: INZ000312836, NSE Member Code: 90319
Registered Office: Flat No. 106, II Floor, New Asiatic Building, H Block, Connaught Place, New Delhi-110001
Corporate Office: Plot No. 3, Veritas Building, 6th Floor, Golf Course Road, Sector 53, Gurgaon-122003, Haryana
Compliance Officer: Ms. Jyotsna; Contact No: +91 93555 90389; Email id: complianceofficer@gripinvest.in
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 document carefully.
Procedure to file a complaint on SEBI SCORES- (i) Register on SCORES portal (ii) Mandatory details for filing complaints on SCORES: Name, PAN, Address, Mobile Number, E-mail ID (iii) Benefits: Effective communication, Speedy redressal of the grievances
i. Prevent Unauthorised transactions in your account --> Update your mobile numbers/email IDs with your Stock Brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. Prevent Unauthorized Transactions in your demat account Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from NSDL/CDSL on the same day.
ii. There is no need to issue a cheque. Please write the Bank account number and sign the IPO application form to authorize your bank to make payment in case of allotment. In case of non allotment the funds will remain in your bank account. Issued in the Interest of Investor. Investments in securities market are subject to market risks; read all the related documents carefully before investing.
iii. KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
iv. Investor awareness on fraudsters that are collecting data of customers who are already into trading on Exchanges and sending them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits.
v. Advisory for investors - Clients/investors to abstain them from dealing in any schemes of unauthorised collective investments/portfolio management, indicative/ guaranteed/fixed returns / payments etc.
Attention Investors:
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 01, 2020.
2. Update your email id and mobile number with your stock broker / depository participant and receive OTP directly from the depository on your email id and/or mobile number to create a pledge.
3. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month. .......... Issued in the interest of Investors
SEBI: https://www.sebi.gov.in | NSDL: https://nsdl.co.in | CDSL: https://www.cdslindia.com | NSE: https://www.nseindia.com | BSE : https://www.bseindia.com | SMART ODR PORTAL: https://smartodr.in/login | SCORES 2.0: https://scores.sebi.gov.in | Sitemap
Made with love️ in India | Copyright © 2024, GripInvest
Grip Invest is a SEBI-regulated platform for high-yield, fixed-income investments like Corporate Bonds and SDIs. Our mission is to enable all Indians to invest in regulated, curated, diversified opportunities offering attractive, predictable returns.
Grip Broking Private Limited
Grip Broking Private Limited (U67120DL2023PTC410290), Member of NSE- SEBI Registration No.: INZ000312836, NSE Member Code: 90319
Registered Office: Flat No. 106, II Floor, New Asiatic Building, H Block, Connaught Place, New Delhi-110001
Corporate Office: Plot No. 3, Veritas Building, 6th Floor, Golf Course Road, Sector 53, Gurgaon-122003, Haryana
Compliance Officer: Ms. Jyotsna; Contact No: +91 93555 90389; Email id: complianceofficer@gripinvest.in
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 document carefully.
Procedure to file a complaint on SEBI SCORES- (i) Register on SCORES portal (ii) Mandatory details for filing complaints on SCORES: Name, PAN, Address, Mobile Number, E-mail ID (iii) Benefits: Effective communication, Speedy redressal of the grievances
i. Prevent Unauthorised transactions in your account --> Update your mobile numbers/email IDs with your Stock Brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. Prevent Unauthorized Transactions in your demat account Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from NSDL/CDSL on the same day.
ii. There is no need to issue a cheque. Please write the Bank account number and sign the IPO application form to authorize your bank to make payment in case of allotment. In case of non allotment the funds will remain in your bank account. Issued in the Interest of Investor. Investments in securities market are subject to market risks; read all the related documents carefully before investing.
iii. KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
iv. Investor awareness on fraudsters that are collecting data of customers who are already into trading on Exchanges and sending them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits.
v. Advisory for investors - Clients/investors to abstain them from dealing in any schemes of unauthorised collective investments/portfolio management, indicative/ guaranteed/fixed returns / payments etc.
Attention Investors:
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 01, 2020.
2. Update your email id and mobile number with your stock broker / depository participant and receive OTP directly from the depository on your email id and/or mobile number to create a pledge.
3. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month. .......... Issued in the interest of Investors
SEBI: https://www.sebi.gov.in | NSDL: https://nsdl.co.in | CDSL: https://www.cdslindia.com | NSE: https://www.nseindia.com | BSE : https://www.bseindia.com | SMART ODR PORTAL: https://smartodr.in/login | SCORES 2.0: https://scores.sebi.gov.in | Sitemap
Made with love️ in India | Copyright © 2024, GripInvest
Download the Grip Invest App and stay connected 24/7
Get personalized deal recommendations
Gain insights on your portfolio performance
Receive instant updates and notifications
Grip Invest is a SEBI-regulated platform for high-yield, fixed-income investments like Corporate Bonds and SDIs. Our mission is to enable all Indians to invest in regulated, curated, diversified opportunities offering attractive, predictable returns.
Grip Broking Private Limited
Grip Broking Private Limited (U67120DL2023PTC410290), Member of NSE- SEBI Registration No.: INZ000312836, NSE Member Code: 90319
Registered Office: Flat No. 106, II Floor, New Asiatic Building, H Block, Connaught Place, New Delhi-110001
Corporate Office: Plot No. 3, Veritas Building, 6th Floor, Golf Course Road, Sector 53, Gurgaon-122003, Haryana
Compliance Officer: Ms. Jyotsna; Contact No: +91 93555 90389; Email id: complianceofficer@gripinvest.in
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 document carefully.
Procedure to file a complaint on SEBI SCORES- (i) Register on SCORES portal (ii) Mandatory details for filing complaints on SCORES: Name, PAN, Address, Mobile Number, E-mail ID (iii) Benefits: Effective communication, Speedy redressal of the grievances
i. Prevent Unauthorised transactions in your account --> Update your mobile numbers/email IDs with your Stock Brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. Prevent Unauthorized Transactions in your demat account Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from NSDL/CDSL on the same day.
ii. There is no need to issue a cheque. Please write the Bank account number and sign the IPO application form to authorize your bank to make payment in case of allotment. In case of non allotment the funds will remain in your bank account. Issued in the Interest of Investor. Investments in securities market are subject to market risks; read all the related documents carefully before investing.
iii. KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
iv. Investor awareness on fraudsters that are collecting data of customers who are already into trading on Exchanges and sending them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits.
v. Advisory for investors - Clients/investors to abstain them from dealing in any schemes of unauthorised collective investments/portfolio management, indicative/ guaranteed/fixed returns / payments etc.
Attention Investors:
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 01, 2020.
2. Update your email id and mobile number with your stock broker / depository participant and receive OTP directly from the depository on your email id and/or mobile number to create a pledge.
3. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month. .......... Issued in the interest of Investors
SEBI: https://www.sebi.gov.in | NSDL: https://nsdl.co.in | CDSL: https://www.cdslindia.com | NSE: https://www.nseindia.com | BSE : https://www.bseindia.com | SMART ODR PORTAL: https://smartodr.in/login | SCORES 2.0: https://scores.sebi.gov.in | Sitemap
Made with love️ in India | Copyright © 2024, GripInvest
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