Perpetual Bonds in India: A Detailed Guide for Retail Investors

India’s capital market ecosystem offers a wide variety of bonds and securities for income-focused investors. Traditional bonds usually mature after a fixed tenure and repay principal on a defined date. Perpetual bonds operate very differently. These hybrid securities have no maturity date at all. For investors planning to earn regular interest payouts, it is important to know how to invest in bond products like perpetual securities. In India, large banks and financial institutions mainly issue AT1 perpetual bonds to strengthen their capital base and comply with RBI-prescribed capital adequacy norms. These bonds pay coupons annually or semi-annually and can be sold in secondary markets if investors require liquidity. However, their hybrid nature makes perpetual bonds more complex than normal fixed-tenure bonds.

How Do Perpetual Bonds Work?

A perpetual bond pays fixed interest at regular intervals, known as coupons. Since there is no maturity date, the issuer is not obligated to return the principal. The principal is repaid only if the issuer exercises a call option. Call dates are commonly included after 5 or 10 years. Investors who need liquidity can sell their holdings in the secondary market. Yield on perpetual bonds is therefore measured using current yield rather than yield to maturity. Their prices fluctuate based on interest rate movements and creditworthiness of the issuer.

Why Do Issuers Offer Them?

From the issuer’s point of view, perpetual bonds increase long-term capital without repayment burden. Call options give flexibility. Coupon obligations remain predictable. Banks use them to meet RBI capital norms. Governments discuss them rarely due to fiscal limitations.

Yield Calculation

Most perpetual bonds are evaluated using:
Current Yield = Annual Coupon ÷ Market Price.
For example, coupon ₹80 and price ₹1000 gives 8% yield. But this yield fluctuates as interest rates change.

Who Should Consider Investing?

Perpetual bonds mainly suit knowledgeable investors. Retirees seeking regular coupons may consider them. Long-term investors comfortable with some volatility can participate. Institutional investors remain major buyers in India.

Risks Associated

Interest rate risk is high due to no maturity. Credit risk depends on issuer finances. Call risk limits upside when rates fall. Inflation may reduce real returns. Liquidity may be limited. Diversification across bonds helps reduce risks.

Perpetual Bonds vs Other Bonds

Investors compare perpetual bonds with sovereign gold bonds, SDLs, commercial papers, and NCDs. Each serves different goals. Government securities provide safety. Gold-linked bonds provide asset exposure.

Investing in Perpetual Bonds 

Altifi offers Indian retail investors a transparent digital platform to access high-quality fixed-income instruments. On Altifi, investors can explore and compare perpetual bonds along with corporate bonds, government securities, treasury bills, and Sovereign Gold Bonds. The platform provides clear details on coupon rates, credit ratings, maturity structures, and call options. Instead of dealing with complex traditional procedures, investors can browse opportunities, make payments digitally through internet banking, and track their holdings on a convenient dashboard. For conservative investors who want predictable income and a hassle-free experience, Altifi serves as a trustworthy gateway to India’s expanding bond markets.

Conclusion

Perpetual bonds are special hybrid fixed-income instruments in India suited mainly for long-term coupon income rather than principal repayment. They offer higher yields but also carry additional risks. Investors must conduct proper due diligence and align these bonds with financial goals and risk appetite. With SEBI-regulated frameworks and digital transformation, participation is becoming safer. Today, retail investors across India can easily invest online, evaluate perpetual bonds digitally, and build sustainable passive income portfolios through platforms like Altifi.