If you’ve ever tried to sell a Non-Convertible Debenture on the exchange before it matures, you’ve probably hit this wall: not enough buyers. India’s corporate bond market is huge, with outstanding bonds worth around ₹58 lakh crore (according to the latest SEBI data), but the secondary market has historically been thin relative to that size, with institutional buy-and-hold behavior keeping trading volumes low.
That disconnect between being “listed” and actually being “liquid” is where puttable NCDs come in; they’re designed to bridge that gap. Instead of crossing your fingers and hoping someone will buy your bond at a reasonable price, a puttable NCD gives you the power to make the issuer redeem it early, on specific dates, at a price that’s already been agreed on. Think of it as a built-in exit button that doesn’t depend on the secondary market cooperating, and it’s an idea SEBI itself has now formalized into a regulated framework.
This article unpacks how the put option in these NCDs actually works and how SEBI’s Liquidity Window facility fits into the picture and takes a look at a real-life example, while also covering what you should check before you invest.
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What Exactly Is a Puttable NCD?
An NCD is, at its core, a fixed-income IOU: a company borrows cash from you, pays out a coupon, and then returns the principal at maturity. But here’s the twist: a puttable NCD throws in an extra clause, giving you (the debenture holder) a put option, allowing you to ask the issuer to redeem the bond before it hits maturity, on specific dates outlined in the offer document.
This is different from a call option, which works the other way around: it lets the issuer redeem the bond early, usually when interest rates take a dive and refinancing gets cheaper for them. A put option protects the investor, whereas a call option shields the issuer. Some NCDs come with both, some with neither, and some, like certain tranches of L&T Finance and Muthoot Fincorp public issues, explicitly state “Put and Call: Not Applicable” for specific series, even when other series in the same issue might actually have the feature.
Under Regulation 15 of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 [1], an issuer can offer a put option to all investors or only to retail investors. The option’s exercise period and redemption amount must be disclosed in the offer document. When exercised, the issuer must notify eligible holders and the debenture trustee and simultaneously provide the notice to the stock exchange. The relevant record-date requirement is covered separately under the SEBI LODR Regulations.
Why Illiquidity Made SEBI Formalize the Put Option
Here’s the backdrop that made this feature necessary in the first place:
- Historically, turnover has trailed behind issuance. The RBI’s June 2025 Financial Stability Report noted that average monthly secondary-market turnover was just 3.8% [2] of outstanding corporate bond value. At the same time, average daily turnover rose to ₹7,645 [3] crore in FY2024–25, up from ₹5,722 crore a year earlier.
- Trading is concentrated in top-rated names. The bulk of secondary trading happens in AAA and AA paper; lower-rated NCDs can go for ages without a single trade happening.
- “Buy and hold” institutions dominate. Insurance companies, pension funds, and EPFO (the largest holders of corporate bonds) typically hold to maturity, starving the market of two-way flow.
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SEBI responded directly to this: in October 2024, it introduced a Liquidity Window facility, a uniform framework letting issuers offer put options exercisable on pre-specified dates specifically to address the illiquidity perception for retail investors. The results are showing up in the data: FY26 secondary market trading volumes shot up around 30% to about ₹22.07 lakh crore [4], compared to ₹17.1 lakh crore in FY25.
SEBI also reduced the minimum investment/ticket size for privately placed corporate bonds from ₹1 lakh to ₹10,000. Meanwhile, fresh issuances actually dropped 8.4% to ₹9.1 lakh crore in FY26 [5] (the first time that’s happened since FY22), which just goes to show that primary market activity and secondary market liquidity move in two different directions.
A put option, whether it’s part of a formal Liquidity Window or just built into an older NCD structure, sidesteps the buyer problem altogether. You’re not trying to sell to the market; you’re just exercising a contractual right against the issuer at a price that was fixed upfront. And the best part? You don’t need some other party to show up and make it happen.
A Real-World Example: How the Exit Actually Plays Out
Take Hinduja Leyland Finance, which in early 2026 [6] intimated the BSE of an investor exercising the put option on one of its listed NCD series (ISIN INE146O07508). The process followed the standard mechanism prescribed under the NCS Regulations:
- The company sent a notice to all eligible debenture holders as of a fixed record date, informing them of their right to exercise the put option.
- Those who wanted to bail had to indicate their intention within a certain window.
- The company then redeemed those debentures based on the terms they’d originally laid out in the offer document, with no need to find a buyer on the exchange.
Similar put-option exercises show up regularly in NSE and BSE corporate filings across issuers of different sizes, from NBFCs to banks. The point isn’t that any one issuer is representative; it’s that the put option basically takes this whole uncertain, market-dependent exit process and turns it into something scheduled and rule-bound.
Puttable vs Non-Puttable NCDs: A Quick Comparison
| Feature | Puttable NCD | Standard (Non-Puttable) NCD |
| Early exit mechanism | Contractual right to seek redemption on specified dates or during a specified exercise period | Typically requires selling in the secondary market |
| Exit price | As specified in the offer document, it may include a premium or discount, plus applicable interest. | Market price—can trade at a discount or premium |
| Dependent on a buyer? | No, if the issuer is obligated to honor a valid put exercise under the issue terms | Yes, for a secondary-market sale |
| Typical structure | May include pre-specified put dates or exercise windows; some issuances may use a SEBI-compliant liquidity-window framework. | No contractual put option; exit generally depends on secondary-market trading |
| Investor benefit | Provides a defined contractual exit mechanism on specified dates | Allows an investor to seek an exit through the secondary market without waiting for a contractual put date |
| Trade-off | Exit is available only according to the specified terms, dates, and eligibility conditions. | No guaranteed buyer, timing, or exit price |
What to Check Before Investing in a Puttable NCD
Before treating the put option as a liquidity safety net, it helps to actually read the fine print:
- Exercise window: Put options usually open only on specific anniversary dates (e.g., end of year 3, 5, or 7), not on demand at any point.
- Notice period: Issuers typically require holders to intimate their intent within a defined window before the put date; miss it, and you wait for the next window.
- Redemption price: Confirm whether it’s exactly the face value or adjusted for premium/discount and accrued interest.
- Regulatory approval, where relevant: For instruments like Tier-I/perpetual bonds issued by banks and NBFCs, exercising the option may need RBI sign-off, which can affect timing.
- Credit risk still applies: A put option protects you from liquidity risk, not credit risk. If the issuer is in financial distress, the right to demand redemption is only as good as its ability to pay.
In Short
India’s corporate bond secondary market has long been thinner than its size suggests, largely because institutions tend to buy and hold, while everyone else flocks to top-rated names, and puttable NCDs don’t fix that market-wide problem on their own. But here’s the thing: with issuer-specific put clauses and SEBI’s now-formalized Liquidity Window facility, investors have got a legitimate way out backed by the regulator that doesn’t need the market’s cooperation: a guaranteed process for exiting on specific dates, not a guarantee that the issuer will have the cash to honor it.
So, when you’re looking at bonds, especially the longer-tenor ones where the secondary market is pretty thin, it’s crucial to dig into the credit rating and fundamentals, not just the put option itself. This is general information, not investment advice; read the specific offer document for the exact terms attached to any put option before you invest.
Puttable NCDs Frequently Asked Questions
A puttable NCD is a non-convertible debenture that gives the investor a contractual right to ask the issuer to redeem the NCD before its original maturity, subject to the terms and exercise dates specified in the issue documents.
A put option gives the bondholder the right to sell the bond back to the issuer at specified terms on eligible exercise dates. It is different from a call option, which gives the issuer the right to redeem the bond early.
Instead of depending entirely on finding another investor in the secondary market, an eligible investor can exercise the put option and seek redemption from the issuer on the specified date and according to the issue terms.
No. A put option is an additional feature of an NCD and applies only when it is included in the issue’s terms. Investors should check the offer document and other applicable disclosures before assuming an NCD has an early-exit facility.
Usually not. The exercise dates, notice period, eligible investors, quantity, and redemption price are determined by the terms of the particular NCD or liquidity-window facility.
Not exactly. A put option is a contractual feature written into the security’s terms that allows the investor to request early redemption on specified terms and dates. It should not be confused with an ordinary premature-withdrawal facility offered on products such as bank deposits.
Sources
- SEBI — Issue and Listing of Non-Convertible Securities Regulations, 2021
- RBI — Financial Stability Report, June 2025
- RBI — Annual Report 2024–25
- Financial Express — Secondary corporate bond market surges 30%
- The Economic Times — Corporate bond mobilisation falls 8.4% in FY26
- Hinduja Leyland Finance — Intimation of Exercise of Put Option, March 31, 2026
Disclaimer
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