Ruchi SrivastavaPublic Sector Undertaking (PSU) Bonds, widely recognized for their reliability, provide a balance of stability and returns. These entities are backed by the Government of India and primarily operate in key sectors such as petrochemicals, coal, natural gas, and infrastructure development. As a result, PSU bonds have become increasingly popular among investors in 2025, offering a safe, secure, and low-risk investment option. This blog explores every aspect of investing in PSU bonds, providing you with the insights needed to make well-informed investment decisions this year.
What are PSU Bonds?
PSU (Public Sector Undertaking) bonds are debt instruments issued by public sector undertakings in which the Central or State Government typically owns more than 51% of the shares. These bonds are issued to generate funds for various projects and have a medium to long-term maturity period, generally ranging from 5 to 10 years. Investors receive periodic interest payments, such as semi-annual or annual payouts, with the principal amount repaid upon maturity.
Investors can buy PSU bonds either through the primary issuance market or the secondary market and hold them in their demat accounts. These bonds are easily tradable and transferable on stock exchanges, offering liquidity to investors. Before investing, it is advisable to review the credit rating of the bonds to ensure they align with the investor’s goals regarding interest payments, security, and maturity duration.
Types of PSU Bonds
| Type of PSU Bond | Features | Examples | Purpose |
| Taxable (General) PSU Bonds | – Higher coupon rates compared to other categories. – Interest income is taxable as per the investor’s tax slab. – Shorter tenures; actively traded in secondary markets. | REC, HUDCO | Provides a low-risk, liquid investment option with higher returns for investors. |
| Tax-Free PSU Bonds | – Interest income exempt under Section 10(15) of the Income Tax Act, 1961. – Longer tenure. – Suitable for investors in higher tax brackets. | NHAI, PFC | Offers stable, tax-free returns to investors. |
| Infrastructure PSU Bonds | – Issued to fund large infrastructure projects. – Tax benefits under Sections 80CCF and 54EC (on interest income and LTCG). – Medium tenure with moderate returns. | IRFC, NHAI | Supports infrastructure development while providing tax benefits to investors. |
Features of PSU Bonds
- Long-Term Investment: PSU bonds are designed for investors seeking stable, long-term investment options. These bonds generally have a maturity period ranging from 5 to 10 years, making them ideal for individuals looking to build wealth steadily over time or align their investments with future financial goals.
- Liquidity: PSU bonds offer good liquidity as they are actively traded in the secondary market. Investors can buy or sell these bonds with ease, ensuring flexibility. Additionally, they can be conveniently stored in demat accounts, simplifying the process of managing and transferring these securities.
- High Credit Rating: Backed by the government, PSU bonds are considered highly reliable and secure. Their high credit ratings reflect their low default risk, providing investors with confidence in the safety of their investments. This makes PSU bonds a preferred choice for risk-averse investors.
- Regular Interest Income: One of the key advantages of PSU bonds is the consistent interest income they provide. Interest payments are typically made semi-annually or annually, ensuring a steady stream of returns for investors throughout the bond’s tenure.
Latest list of PSU Bonds to Invest in 2025
| Issuer | Rating | ISIN | Issue Size | Maturity Date | Coupon Rate |
| NTPC Limited | CRISIL AAA | INE733E07GR8 | 5.00 Cr | 23 Dec 2025 | 9.67% |
| NTPC Limited | CRISIL AAA | INE733E07GW8 | 5.00 Cr | 23 Dec 2030 | 9.67% |
| NTPC Limited | CRISIL AAA | INE733E07GT4 | 5.00 Cr | 23 Dec 2027 | 9.67% |
| NTPC Limited | CRISIL AAA | INE733E07GU2 | 5.00 Cr | 23 Dec 2028 | 9.67% |
| NTPC Limited | CRISIL AAA | INE733E07GX6 | 5.00 Cr | 23 Dec 2031 | 9.67% |
| NTPC Limited | CRISIL AAA | INE733E07GS6 | 5.00 Cr | 23 Dec 2026 | 9.67% |
| Export-Import Bank Of India | CRISIL AAA | INE514E08DO4 | 1000.00 Cr | 26 Feb 2024 | 9.65% |
| Export-Import Bank Of India | CRISIL AAA | INE514E08DP1 | 348.00 Cr | 04 Apr 2024 | 9.65% |
| Power Finance Corporation Ltd. | CRISIL AAA | INE134E08FW9 | 1000.00 Cr | 13 Jan 2024 | 9.65% |
Benefits of Investing in PSU Bonds
- Stable Returns: PSU bonds provide a reliable source of income to bondholders, ensuring consistent and predictable returns throughout their tenure.
- Minimal Default Risk: Issued by government-backed entities, PSU bonds have a very low risk of default in terms of both interest payments and principal repayment, making them a secure investment option.
- Attractive Yields: Offering annual returns in the range of 8% to 9%, PSU bonds generally provide higher interest rates compared to fixed deposits (FDs), making them an appealing choice for investors seeking better yields.
- Market Resilience: Backed by the government, PSU bonds are less affected by market volatility, providing a safe haven for investors even during economic uncertainty.
- Portfolio Diversification: Investing in PSU bonds helps diversify an investor’s portfolio, reducing overall risk while enhancing potential returns by balancing other asset classes.
- Tax Efficiency for High-Income Earners: PSU bonds are particularly beneficial for high-income taxpayers due to favorable taxation. Gains held for over three years are taxed at 10% under long-term capital gains (LTCG) without indexation benefits. However, gains from bonds held for less than three years are taxed as short-term capital gains based on the investor’s income slab.
- Long-Term Investment Potential: With a maturity period typically ranging from 5 to 10 years, PSU bonds are ideal for medium to long-term investments. They offer a practical way to generate steady income over time while preserving capital.
How to invest in PSU Bonds in India?
- Explore various options for investing in PSU bonds in India:
- Directly review the list of PSU bonds and select one that aligns with your financial goals.
- Invest in mutual funds that allocate money to PSU bonds.
- Use brokers or purchase tradable PSU bonds in the secondary market.
- Opt for direct investments in new bond offerings by PSU companies.
- Eligibility:
- Criteria vary by bond type but are generally open to individual and institutional investors.
- Costs:
- Include brokerage fees or transaction charges when trading on exchanges.
- Key Considerations:
- Assess bond credit ratings, tenure, and applicable coupon rates before making a decision.
- Convenience:
- Modern online trading platforms and new-age brokerage services make it easy to access and invest in PSU bonds.
Final Thoughts
PSU bonds are a great option for investors seeking safe and reliable fixed-income investments. Offering steady returns, tax benefits, and minimal risk, they are ideal for conservative investors and those aiming to diversify their portfolios. However, before investing, it is crucial to evaluate factors such as credit ratings, bond tenure, and tax implications. To ensure your PSU bond investments align with your long-term financial objectives, consider consulting a financial advisor.
