List of Listed Bonds

Private companies, Public Sector Undertakings (PSUs), and the government can list bonds. A Sovereign credit rating backs government bonds.

Listed bonds have several benefits, as discussed below:

• In terms of liquidity, listed bonds offer higher liquidity than unlisted bonds as the listed bonds can be easily traded in exchange.
• They are easy to buy and sell as they are listed on stock exchanges like NSE and BSE.
• Even the chances of default reduce as SEBI regulates listed bonds, while unlisted bonds are not.

As every coin has two sides, so do listed bonds. Below we have listed a few drawbacks of the listed bonds:

• If your primary purpose is not regular income and you don’t plan to hold the listed bond until maturity, it is subject to interest rate risk.
• Whether listed or unlisted, both carry reinvestment risk.

A yield is a number that shows the returns of any bond. Many times it is referred to as Yield to Maturity (YTM). You receive interest payments based on the coupon rate. You can calculate the YTM using the below formula:

YTM = [Annual Interest + {(FV - Price)/Maturity}]/[(FV+Price)/2]

Where,

YTM = Yield to Maturity
Annual Interest = Coupon payment that you receive annually.
FV = Face Value
Price  = Current Market Price of the Bond
Maturity = Number of years left till maturity

Let’s take an example to understand it better. Assume you invest in a bond having the following characteristicsLet’s take an example to understand it better. Assume you invest in a bond having the following characteristics:

So, if we plug in all the values in the above formula, the YTM for the bond in the example works out to be 10.8%:

YTM = [70 + {(1000-850)/5}] / [(1000+850)/2]

However, if we change the bond's current market value to ₹1,100, then the YTM works out to be 4.8%. From this, we can understand the relationship between YTM and bond prices. As and when YTM increases, bond prices decrease and vice versa.

However, a lot of people often confuse YTM with coupons. A coupon is a predetermined rate when you buy the bond and is applied on the face value of the bond, while the YTM is the prevailing market rate of the bond reflecting the annualised return the investor will make.

Listed bonds are taxed similarly to other debt securities excluding tax-saving bonds. Any interest the investors earn on the listed bonds is taxed as per the individual tax slabs.

In case the bond is sold before maturity, any gains arising on sale of bond would be classified as capital gains. For listed bonds, if the holding period is above 12 months,any gains arising from sale of such bonds would be long term capital gains. Similarly, for any listed bond, if the holding period is 12 months or less, any gains arising from sale of such bonds would be short term capital gains.

In the case of STCG, the gains are added to the investor’s income and taxed as per individual tax slabs. Whereas in the case of LTCG, gains are taxed 10% without indexation benefit, plus any surcharge.

Also, from April 1, 2023, the tax deducted at source (TDS) will be 10% on any interest payment made by the Issuer.

For those looking who wish to take additional risk than fixed deposits, for those extra returns can invest in listed bonds. Moreover, those concerned about credibility can invest in listed bonds as SEBI regulates them. However, if you are looking for even higher returns than listed bonds, you can deal in unlisted bonds.