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In India, bearer bonds were introduced on January 12, 1981, under the Special Bearer Bonds Act, 1981. The purpose? It was to bring unaccounted money into the formal system.
Bearer bonds were once a popular fixed-income investment instrument because ownership was determined simply by possession of the physical certificate. Unlike registered bonds, bearer bonds did not record the investor’s name. Whoever held the bond certificate could claim the interest payments and principal amount.
Today, bearer bonds are largely discontinued in many countries due to concerns related to tax evasion, money laundering, and lack of ownership tracking. However, understanding bearer bonds remains important for investors learning about the evolution of bond markets and fixed-income instruments.
- Investors could buy such bonds without revealing their identity
- Received legal protection + tax immunity.
The Government of India began selling bearer bonds on February 2, 1981, within India and from February 9, 1981, outside India. However, the sale was stopped on January 9, 1982, due to petitions filed in the Supreme Court of India, challenging the validity of the law.
As of 2026, the issuance and trading of bearer bonds are illegal in India. Curious to learn more about this financial product? Read this article to understand what is bearer bond, why they appealed to investors, and the major risks associated with holding them.
What is Bearer Bond
A bearer bond is a type of debt security owned by the individual who physically possesses the bond certificate. The issuer does not maintain records of ownership.
Interest payments are usually collected through attached coupons, which investors submit to receive periodic payments. Upon maturity, the holder can redeem the bond for its face value.
Now, let’s understand how they worked.
How Did Bearer Bonds Work?
Bearer bonds were a type of loan given by investors to a government. In return, the issuer promised to:
- Pay interest every years
- Repay the full amount at maturity
Let’s see how it happened:
| A) Interest Payment Process (Coupons) | B) Principal Repayment at Maturity |
| * Physical Coupons: Bearer bonds came with literal sheets of paper coupons attached to the main certificate. Each coupon represented a single scheduled interest payment. * The Clip & Submit Method: To collect interest, the bondholder would physically clip the relevant coupon from the certificate and submit it to an authorized bank. * No Questions Asked: The bank paid out the interest cash directly to whoever presented the coupon. No identity verification or proof of original purchase was required. | * End of Term Redemption: Once the bond reached its official maturity date, the investment period concluded. * Surrendering the Certificate: The holder would bring the entire remaining physical bond certificate back to the issuer or an authorized financial institution. * Final Payout: The issuer paid back the full face value (principal amount) printed on the certificate to the person holding it. Just like the coupons, ownership was entirely possession-based. |
In some cases, bearer bonds were also issued without any coupon rate. Such a bearer bond series had a:
- Face value of ₹10,000
- Maturity value of ₹12,000
- Time period of 10 years
The investors did not receive yearly interest. Instead, the difference between the face value and maturity value (a premium of ₹2,000) became the investor’s gain.
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Why Bearer Bonds Were Attractive to Investors
One of the main advantages of bearer bonds was the “complete privacy” they offered. Since ownership was established only by holding the physical certificate, investors could:
- Keep their financial holdings confidentials
- Avoid any external scrutiny of their investments or wealth.
Additionally, some more advantages that bearer bonds offered were:
1. Simple and Direct Transfer of Ownership
Bearer bonds were easy to transfer because ownership was “possession-based”. If the holder wanted to transfer the bond, they could simply hand over the certificate to another person. There was no need to:
- Fill out transfer forms
- Notify the issuer
- Update ownership records
The new holder immediately gained full rights to receive future interest payments and the principal amount at maturity without any legal registration.
2. Pre-Determined Returns
Bearer bonds provided a pre-determined return. Depending on the series, the bearer bond either:
- Paid regular interest through coupons
or
- Offered a maturity value higher than the purchase price
This allowed investors to know in advance how much they would receive and when they would receive it.
What were the Risks Associated With Bearer Bonds
Bearer bonds carried the risk of “permanent loss”. Since ownership details were not maintained, there was no way to prove who the original owner was. As a result, if the bond certificate was lost, stolen, or destroyed, the investor had no legal method to recover it.
Additionally, some other disadvantages of bearer bonds were:
1. High Potential for Illegal Use and Tax Evasion
Bearer bonds allowed complete anonymity. This made them attractive for illegal activities, such as:
- Hiding undisclosed income
- Avoiding taxes
- Transferring money without leaving any audit trail
- Money laundering
2. Risk of Forgery and Counterfeit Certificates
Bearer bonds existed as “physical paper certificates”. This made them vulnerable to forgery and counterfeiting. Fraudsters could:
- Create fake bond certificates
- Attempt to claim interest or maturity payments
Additionally, physical certificates were also exposed to damage from fire, water, or wear, which could make them unusable and result in financial loss.
To Conclude, Bearer Bonds Were Possession-Based Debt Instruments Sold Until January 9, 1982
So now you know what is bearer bond. They were debt instruments where the person holding the physical certificate was treated as the owner. As of February 17, 2026, such bearer bonds are not valid in India.
The Special Bearer Bonds Act, 1981 was repealed, and the last such bonds were sold on January 9, 1982. Nowadays, regulations enforced by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) require all investments to be linked to “verified investor identities” as per Know Your Customer (KYC) and Anti-Money Laundering (AML) rules.
Looking to make bond investments in 2026? You may visit the GoldenPi platform. Here, you can access a wide variety of bond collections, such as highly-rated bonds, short-term bonds, state government guaranteed bonds, and more. Also, you can even apply to the latest NCD IPOs. The process is 100% digital and can be completed online from the comfort of your home.
Citations
- Circular No. 454, dated 24-04-1986
- From bearer bonds to digital securities — how India’s fixed-income investments evolved | Stock Market News
What are Bearer Bond FAQs
The holders received the benefit of “complete anonymity”. The authorities could not question or investigate the source of funds used to buy these bonds. Additionally, they got “tax immunity”, where investors did not have to pay income tax, wealth tax, or gift tax on the amount invested.
If the original holder gave or sold the bond to another person, the new holder became the legal owner. Now, they could collect future interest and receive the principal at maturity. No registration, approval, or ownership update was required.
No, the Special Bearer Bonds Act, 1981, was repealed, and the last series of bearer bonds was sold on January 9, 1982. In 2026, trading of bearer bonds is illegal.
A bearer bond did not carry the investor’s name. Ownership depended entirely on possession. Whoever physically held the bond certificate was treated as the legal owner.
If a person bought a bearer bond and later sold it to someone else at a higher price, the resulting profit would not be treated as a capital gain. That’s because bearer bonds are specifically excluded from the definition of “capital asset” under Section 2(14) of the Income-tax Act.
When the bond reached maturity, investors received a premium on redemption. Under Section 10(15)(ib) of the Income-tax Act, 1961, this premium is tax exempt.
Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Bonds or non-convertible debentures (NCDs) are regulated by the Securities and Exchange Board of India and other government authorities. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
