NABARD Launches ₹19,500 Crore Zero-Coupon Bonds: What Investors Need to Know
The National Bank for Agriculture and Rural Development (NABARD) is set to issue ₹19,500 crore in zero-coupon bonds, a move recently notified by the Central Board of Direct Taxes (CBDT). This initiative follows the government’s approval of NABARD’s proposal to raise these funds.
Key Details of the Bonds
NABARD has until May 31, 2027, to issue these bonds. A total of 19.50 lakh bonds will be issued, with a collective discount amounting to ₹10,348.625 crore.
These are known as zero-coupon bonds because they don’t pay periodic interest. Instead, investors purchase them at a discounted price and receive the full face value upon maturity. For tax purposes, they’re also referred to as deep-discount bonds.
The bonds will mature in 10 years, 11 months, and 13 days, at which point NABARD will pay investors a total maturity amount of ₹19,500 crore.
How Investors Benefit
An investor’s profit from a zero-coupon bond is simply the difference between the purchase price and the face value received at maturity. This profit is taxed as capital gains when the bond is transferred or redeemed, not on an annual basis.
Part of a Larger Trend
NABARD’s issuance marks the fifth time a government-run firm has issued bonds recently. Other organizations include REC, Power Finance Corp (PFC), Housing and Urban Development Corp (HUDCO), and Indian Railway Finance Corp (IRFC), all aiming to complete their fundraising by March 2027.
This announcement comes at an interesting time, especially after PFC recently withdrew its zero-coupon bonds due to weak investor demand. However, REC’s zero-coupon bonds in September last year were significantly oversubscribed, raising ₹5000 crore at an effective yield of 6.25% per annum.
Are They a Good Investment?
Given the current lending rate easing cycle led by the Reserve Bank of India (RBI), these zero-coupon bonds might appeal to investors. They offer the advantage of locking in returns for a long duration, eliminating reinvestment risks. This makes them potentially attractive for those seeking long-term, predictable returns.
The deep-discount model also offers potential tax efficiency under the current capital gains regime, where Long Term Capital Gains (LTCG) on listed bonds are taxed at 12.5% without indexation.
However, before making any investment, it’s always wise to consult a financial advisor to ensure these bonds align with your personal portfolio and financial goals.