Last Updated on September 18, 2023 by BFSLTeam BFSLTeam
Have you been considering investing in debt securities like bonds? If you have, you can enjoy many advantages like lowered portfolio risk, regular coupon payments and even tax savings. However, the benefits depend entirely on the bonds that you choose to invest in. Given the wide range of choices in the Indian bond market, selecting bonds for your portfolio can be quite challenging.
To make this choice easier for you, we’ve curated this article with the best bonds to invest in India in different categories. Check out the top options below.
Table of Content
Bonds that Offer Monthly Income
One of the most sought-after benefits of debt securities like bonds is that they offer guaranteed interest payouts that can be a reliable source of income. While most bonds offer only annual interest, some offer monthly payouts that can add to or even replace your primary income if needed. These are the best bonds to buy if you are looking for a supplementary source of monthly income.
Some examples of such bonds are listed below.
| Bond | Coupon Rate | Interest Payment Frequency | Bond Rating | Maturity Date | Yield to Maturity (YTM) |
| ESAF Small Finance Bank Subordinate Debt Tier 2 | 11.25% | Monthly | CARE A | May 04, 2029 | 11.84% |
| Muthoot Microfin Limited Secured – Regular Bond/Debenture | 10.75% | Monthly | CRISIL A+ | August 01, 2026 | 11.29% |
| Fincare Small Finance Bank Limited Subordinate Debt Tier 2 – Lower | 10.75% | Monthly | ICRA A | February 09, 2029 | 11.28% |
Government Securities
Government securities are instruments issued by the central or state governments. Bonds that belong to this category are backed by the government’s sovereign guarantee. This makes them highly safe investment options. If you are a risk-averse investor, these may be the best bonds to invest in right now since they carry little to no risk.
Additional Read: Sovereign Gold Bond
Some examples of such bonds are listed in the table below.
| Bond | Coupon Rate | Interest Payment Frequency | Bond Rating | Maturity Date | Yield to Maturity (YTM) |
| 10.18% Government Securities 2026 | 10.18% | Semi-annual | NA | September 11, 2026 | 7.12% |
| 7.19% Tamil Nadu SDL 2042 | 7.19% | Semi-annual | NA | March 2, 2042 | 7.52% |
| 8.45% Uttar Pradesh SDL SPL 2024 | 8.45% | Semi-annual | NA | October 4. 2024 | 7.17% |
Also Read:
Also Read: What Is a Maturity Date?
Tax-Saving Bonds
The interest earned from bonds is taxed as per the investor’s income tax slab. Additionally, the capital gains are also taxed at the applicable LTCG or STCG rates. However, there are some tax-saving bonds that give you the benefit of tax deductions u/s 80CCF of the Income Tax Act, 1961.
Some examples of tax-free bonds are tabulated below.
| Bond | Coupon Rate | Interest Payment Frequency | Bond Rating | Yield to Maturity (YTM) |
| NHAI N6 8.75% Tr-I S IIB | 8.75% | Annual | AAA | 4.71% |
| NABARD Tax-Free Bond Tr-I SrIIB | 7.64% | Annual | AAA | 4.90% |
| PFC Tax-Free NCD | 8.92% | Annual | AAA | 4.86% |
Also Read: Is Tax Deductible at Source Applicable on Bonds?
PSU Bonds
As the name indicates, PSU bonds are debt securities issued by public sector companies. While they may carry higher level of risk than government bonds, they are considered to be safer than corporate bonds issued by private companies and other public non-government companies. If you want to earn slightly higher returns without taking on undue risk, these are the best bonds to invest in.
Some examples of such bonds include the following:
| Bond | Coupon Rate | Interest Payment Frequency | Bond Rating | Maturity Date | Yield to Maturity (YTM) or Yield to Call (YTC) |
| Bank of Baroda AT1 Perpetual Bond | 8.70% | Annual | Ind-Ra AA+ | NA | 8.15% |
| Mahanagar Telephone Nigam Limited – Regular Unsecured Bond/Debenture | 7.78% | Semi-annual | Ind-Ra AAA(CE) | February 10, 2033 | 7.65% |
| Hindustan Petroleum Corporation Limited – Regular Unsecured Bond/Debenture | 7.74% | Annual | CRISIL AAA | March 02, 2028 | 7.54% |
Corporate Bonds
Corporate bonds are issued by companies in various sectors. These companies may be listed or unlisted, and public or private. Depending on the company that issues the bond, the returns and risks may vary. To find the best bonds to invest in from this category, it is crucial to look at the bond ratings assigned by credit rating agencies.
Let’s take a closer look at some of the best bonds to invest in in India’s corporate segment.
| Bond | Coupon Rate | Interest Payment Frequency | Bond Rating | Maturity Date | Yield to Maturity (YTM) or Yield to Call (YTC) |
| 10.10% Avanse Financial Services Limited | 10.10% | Annual | CARE A+ | August 7, 2025 | 8.83% |
| 8.09% Toyota Financial Services India Limited | 8.09% | Annual | AAA Stable | July 28, 2028 | 7.97% |
| 9.9% L&T Finance Limited Perpetual | 9.90% | Annual | AA+ Stable | NA | 8.18% |
Conclusion
To choose the best bonds for investment in India, you need to carry out extensive research and compare your options. While expert recommendations can help, it is effectively up to you to find bonds that are the best fit for your financial portfolio. This is because ultimately, the answer to what the best bonds to invest in are will vary from one investor to another.
You need to assess your financial goals, investment budget and risk profile and then select the best bonds to invest in accordingly. Keep in mind that with time, your goals and investment objectives may evolve, so your bond selection must also adapt to your changing financial plans. So, it’s a good idea to remain aware of the best bonds to buy in different categories and make your decisions accordingly.
