What is Coupon Rate in Bonds in India - 2023?

What is Coupon Rate in Bonds in India?

Bonds are debt instruments that allow borrowers to raise funds from lenders. They are issued by various entities, such as governments, corporations, financial institutions, and others. Bonds typically pay a fixed or variable interest rate to the lenders and are redeemable at maturity.

The interest rate that a bond pays is known as the coupon rate. The coupon rate is expressed as a percentage of the bond’s par value, also known as the face value. The par value is simply the value of the bond as stated by the issuing entity. For example, a Rs. 1,000 bond has a par value of Rs. 1,000.

The coupon rate determines the amount of interest that the bondholder will receive every year until the bond matures. For example, if a bond has a par value of Rs. 1,000 and a coupon rate of 5%, the bondholder will receive Rs. 50 as interest every year.

The coupon rate of a bond depends on various factors, such as the credit rating of the issuer, the prevailing market rates, the demand and supply of the bonds, the inflation rate, and the fiscal situation of the government. The coupon rate can be either fixed or floating.

A fixed coupon rate means that the interest rate remains constant throughout the life of the bond. The bondholder will receive the same amount of interest every year, regardless of the changes in the market conditions. A fixed coupon rate provides certainty and stability to the bondholder, but it also exposes him/her to the risk of losing out on higher returns if the market rates rise.

A floating coupon rate means that the interest rate changes periodically based on a benchmark rate, such as the repo rate or the treasury bill rate. The bondholder will receive a different amount of interest every year, depending on the changes in the benchmark rate. A floating coupon rate provides protection to the bondholder from the risk of losing out on higher returns if the market rates rise, but it also exposes him/her to the uncertainty and volatility of the market conditions.

In India, the coupon rate of bonds varies depending on the type and issuer of the bond. For example, the coupon rate of government bonds is usually lower than the coupon rate of corporate bonds, as the former have a lower default risk and a higher credit rating. The coupon rate of tax-free bonds is also lower than the coupon rate of taxable bonds, as the former offer a tax advantage to the bondholder.

According to the data from the web search results, the coupon rate of some of the bonds issued in India in 2023 are as follows:

Tax Free Bonds: These are bonds issued by public sector undertakings (PSUs) and other government entities to raise funds for infrastructure and social development projects. The interest income from these bonds is exempt from income tax, making them an attractive choice for investors in the higher tax brackets. The coupon rate of these bonds ranges from 4.63% to 7.12%, depending on the issuer, the maturity period, and the credit rating.

RBI Bonds: These are bonds issued by the Reserve Bank of India (RBI) to raise funds for its operations and monetary policy. The interest income from these bonds is taxable as per the income tax rules, but the principal amount is guaranteed by the RBI. The coupon rate of these bonds is 7.15% (compounded, payable half-yearly).

Dated Securities: These are long-term bonds issued by the central or state government to finance their fiscal deficit and support their borrowing program. They pay a fixed or floating interest rate every six months until maturity. The interest rate is determined by the market forces and the credit rating of the government. The coupon rate of these bonds ranges from 6.50% to 8.92%, depending on the issuer, the maturity period, and the credit rating.

If you want to know more about the coupon rate of bonds in India 2023, you can refer to these sources:

India Government Bonds - Yields Curve: This website provides live data on the bond prices, yields, volumes, values, and other details of various bonds issued in India.

Tax Free Bonds 2023 | Tax Saving Bonds 2023 | List Of Tax-Free Bonds 2023 - ClearTax: This article gives an overview of the features and benefits of investing in tax free bonds 2023.

RBI Floating Rate Savings Bonds, 2020 (Taxable) - RBI: This article provides information on the features and benefits of investing in RBI floating rate savings bonds 2020.

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