NBFC Bonds

When you buy an NBFC bond, you lend money to the NBFC. The NBFC pays you a fixed interest, called the coupon. Coupons are paid every month, quarter, or year. At the end of the bond's tenure, you get your principal back.

An NBFC is a company that lends money to people. It works like a bank in some ways. But it cannot accept regular savings or current accounts. Think of an NBFC as a kitchen that cooks meals. It lends money but does not handle deposits.

To run their lending business, NBFCs need to borrow first. That is where you come in. You buy an NBFC bond. The company uses your money to lend to its customers. You earn interest until the bond matures.

Non-banking financial company debentures

These bonds are also called non-banking financial company debentures. Most are issued as NCDs. NCD stands for Non-Convertible Debenture. That just means a loan that cannot be turned into company shares. NCDs are listed on NSE and BSE. So you can sell them before maturity if needed.

GoldenPi lists currently traded NBFC bonds. It is a SEBI-registered online bond platform. Your KYC, payment, and demat sit in one place.

NBFCs use this money to make loans. Gold loan NBFCs lend against gold jewelry. Microfinance NBFCs lend to small businesses. Housing finance NBFCs lend for home purchases. The NBFC charges its borrowers more than it pays you. The difference is the company's profit.

A simple example: Say you put Rs. 50,000 in an NBFC bond paying 11% a year. The bond pays interest every month. You receive about Rs. 458 each month. Over a year, that adds up to Rs. 5,500.

The bond matures in 24 months. You get your Rs. 50,000 back. The monthly interest you already received is yours to keep.

Types of NBFC

Bonds on GoldenPi: The current GoldenPi collection sits in the BBB-to-A rating band. These are mid-tier NBFCs. They work in microfinance, gold loans, and fintech lending.

Tenures usually run 7 to 35 months. Most pay interest monthly or quarterly.

NBFC Bonds vs NBFC

FDs and NBFCs also offer fixed deposits. Bajaj Finance is the most well-known issuer of NBFC FDs. Bonds work as a Bajaj Finance FD alternative. Both let you lend to the same kind of company. The format is different.

The bond can be sold any time the market is open. The FD locks both the rate and the maturity value.

NBFC Debt Interest Rates

NBFC debt interest rates depend on the credit rating of the company. Lower ratings come with higher rates. The reason is simple. A weaker NBFC must pay more to attract investors.

A Muthoot Finance NCD pays around 7.75% to 8.75%. Muthoot Finance is AA+ rated. A BBB-rated NBFC must pay around 12% to 14% for the same money. Live NBFC debt interest rates on each listed bond are shown on GoldenPi.

Risks to Understand

These bonds pay more than top-rated AAA paper. The reason is risk. Three things matter.

1. Credit risk. The NBFC could fail to pay you back. This depends on the loans the NBFC has made. IL&FS in 2018 and DHFL in 2019 were AAA rated. They still defaulted.
   
   
2. Liquidity risk. Not every listed bond trades often. If you want to sell early, the exit may not happen at the price you expect.
   
   
3. Interest rate risk. Bond prices fall when market interest rates rise. This matters only if you sell before maturity.
   
   

How to Invest in NBFC Bonds on GoldenPi

GoldenPi is a SEBI-registered online bond platform provider To invest:

1. Log in to your KYC-verified account.
2. Filter for NBFC listings. Narrow by issuer, rating, yield, or tenure.
3. Each listing shows the coupon, maturity, rating, YTM, and traded volume.
4. Pay via NEFT or RTGS from your bank account.
5. The bonds land in your NSDL or CDSL demat after settlement.

Minimum investment on most listings is Rs. 10,000. That is the SEBI face value since July 2024.

Taxation

Interest is added to your total income. It is taxed at your slab rate. Once annual interest from one issuer crosses Rs. 10,000, TDS at 10% kicks in. This applies to listed corporate NCDs under Section 193 of the Income Tax Act.

If you sell a listed bond within 12 months, the profit is taxed at a slab rate. Beyond 12 months, it falls under LTCG at 12.5% without indexation. This is under the Finance (No. 2) Act, 2024.

Top 5 NBFC Bonds