Bonds
Indian Debt Comparison

MAIN BOND TYPES: (1) GOVERNMENT SECURITIES (G-Secs): 7-7.5% yield, ZERO credit risk. RBI Retail Direct. (2) CORPORATE BONDS: 7-9% yield, credit risk. Various rated AAA to D. (3) TAX-FREE PSU BONDS: 5.5-6.5% yield, TAX-FREE interest. NHPC, REC, IRFC bonds. (4) RBI FLOATING RATE BOND: 8.05% NSC + 0.35%, semi-annual reset. (5) SOVEREIGN GOLD BONDS: gold-linked + 2.5% interest. (6) INFLATION-INDEXED BONDS: rare.

QUICK COMPARISON: (1) G-Secs: 7-7.5%, ZERO credit risk, interest taxable at slab. (2) Corporate AAA: 7.5-8.5%, low credit risk, slab tax. (3) Corporate AA: 8-9.5%, moderate credit risk, slab tax. (4) Tax-free PSU bonds: 5.5-6.5%, low credit risk, TAX-FREE interest. (5) RBI Floating: 8.05%, ZERO credit risk, slab tax. (6) SGB: gold price + 2.5%, ZERO credit risk, maturity tax-free.

TAX-FREE PSU BONDS issued by PSUs (NHPC, REC, IRFC, PFC) — INTEREST is TAX-FREE for retail investors. KEY: (1) 5.5-6.5% YIELD (lower nominal but tax-free). (2) 10-20 year tenure. (3) Listed on NSE/BSE. (4) HIGH CREDIT QUALITY (govt PSU). (5) Trade in secondary market. EFFECTIVE post-tax for 30% slab: 5.5% tax-free = 7.85% taxable equivalent. STRATEGIC: HNW investors stack tax-free PSU bonds.

BOND PURCHASE: (1) G-Secs: RBI Retail Direct. Min ₹10K. (2) Corporate bonds: NSE/BSE secondary market via broker. (3) Tax-free PSU bonds: NSE/BSE. (4) RBI Floating Bond: designated banks. (5) SGB: tranches via banks/brokers. ALLOCATION STRATEGY: (1) Retail debt: 30-50% G-Secs + 30-40% Corporate AAA + 10-30% Tax-free PSU. (2) Avoid junk bonds. (3) Ladder maturities. RECOMMENDED PORTFOLIO mix for HNW debt allocation.

DIRECT BONDS: (1) Self-managed. (2) Lower cost. (3) Hold to maturity. (4) Less liquidity. BOND MUTUAL FUNDS: (1) Fund manager picks bonds. (2) Diversification. (3) Daily liquidity. (4) Higher expense (0.3-1%). (5) Post-July 2024 same slab tax for debt MFs. STRATEGIC: HNW prefer DIRECT BONDS for tax efficiency + control. Retail with smaller corpus uses BOND MFs for diversification. Mix possible.