NBFC Bonds

NBFC Bonds are debt instruments issued by Non-Banking Financial Companies (NBFCs) to raise capital for lending, financing, and other business operations. Unlike bank bonds, NBFC bonds offer typically higher interest rates in exchange for marginally higher risk. Returns and safety depend importantly on each issuer's credit rating and collateral backing.

Key Features:

• Issued by NBFCs, which are financial institutions that are regulated by RBI

• Often offer higher yields than bank fixed deposits or government bonds

• Available in secured and unsecured formats, where secured bonds carry collateral, reducing default risk

• Medium- to long-term tenure, typically 3-10 years

When you invest in an NBFC bond, you're lending money to the NBFC issuer. In return, you get periodic interest payments (the coupon) and your principal as per the repayment schedule. The security of the bond greatly depends on whether it's secured or unsecured, as well as the issuer's credit rating. Higher-rated NBFC bonds offer more stability with moderate yields.

• Attractive Yield: Often outpace traditional FDs, with some offering returns of up to 14%%.

• Regular Income: Coupons may be paid monthly, quarterly, or annually.

• Portfolio Diversification: Provide exposure to financial-sector fixed income beyond banks.

• Credit-Rated Stability: NBFC bonds are assessed by agencies like CRISIL, ICRA, and CARE, helping investors make informed choices.

• Credit Risk: NBFCs are generally riskier than banks. Credit health and rating should guide investment decisions.

• Interest Rate Risk: Bond prices can dip when interest rates rise; holding to maturity avoids this.

• Liquidity Risk: Some NBFC bonds, especially unlisted ones, may have low secondary market demand.

• Inflation Risk: Fixed coupons lose value over time if inflation rises significantly.

• Regulatory & Sector Risk: NBFCs operate under unique liquidity and capital constraints; shocks in this sector can impact bonds.

• Taxable Returns: Interest is taxed as per your slab; capital gains follow standard holding-period norms.

Ideal For:

• Investors with moderate risk appetite seeking higher fixed-income yields than bank FDs.

• Those looking for regular income and willing to selectively invest in high-rated NBFCs.

Not Ideal For:

• Investors prioritising absolute safety or banking-level deposit insurance.

• Short-term investors who need high liquidity or tax-efficient returns.