HDFC Bonds - List of 58 Housing Development Finance Corporation Ltd Bonds

HDFC Bonds in India

Bonds issued by HDFC (Housing Development Finance Corporation), one of India’s largest and popular housing finance companies are referred to as ‘HDFC Bonds.’

Who issues HDFC bonds?

HDFC Bonds are issued by HDFC Ltd. HDFC Ltd has financed over 9 million (90 lakh) homes in India since 1977.

Are HDFC and HDFC Bank different companies?

HDFC Ltd and HDFC Bank are separate entities. HDFC Ltd is involved in home loans while HDFC Bank is a banking entity that offers a host of financial services to its customers. However, in 2022, a merger of the two entities was announced that is pending regulatory approval.

What is the credit rating of HDFC bonds?

HDFC bonds have a credit rating of AAA from CRISIL and ICRA  credit rating agencies. This indicates that HDFC bonds are among the safest corporate bonds in India.

Are HDFC bonds safe?

Yes, HDFC bonds are considered to be extremely safe. Reasons being, AAA credit rating and support from HDFC Bank.

HDFC bond interest rates

Interest rates on long-term HDFC bonds are around 7.8% (10 year bond issued in 2022) while those on short-term HDFC bonds are around 7.4% (3 year bond issued in 2022).

Who should invest in HDFC bonds?

HDFC bonds have a AAA credit rating. This means they are very safe from the credit default risk angle which makes them perfect for low risk or conservative investors who are not looking to make very high returns or seeking risks.

Who should not invest in HDFC bonds?

Because of the AAA safety and popularity of the issuer, returns of HDFC bonds are lower than other bonds (even other AAA bonds). Hence, investors who want to make higher returns using bonds should not consider HDFC bonds. It is important to note that higher risk seeking investors should be aware of the risks and use appropriate risk mitigation methods.

Taxation of HDFC bonds

Taxation of interest of HDFC bonds: Interest earned from HDFC bonds is taxed as per your marginal income tax slab rate.

Taxation on capital gains of HDFC bonds: For listed HDFC bonds, the long term (more than 36 months) capital gains tax rate is 10% and the short term (less than 36 months) capital gains tax is the investor’s marginal income tax slab rate. For unlisted HDFC Ltd bonds, the long term (more than 12 months) capital gains tax is 20% with indexation benefit and the short term (less than 12 months) capital gains tax is the investor’s marginal income tax slab rate.

HDFC Bank fixed deposits versus HDFC bonds

HDFC Bank fixed deposits are considered to be among the safest in India. It is because of the size and recognition of HDFC Bank. Hence, the bank doesn’t have high FD rates as it is not necessary to attract depositors. Moreover, HDFC fixed deposits are insured by the government - up to Rs. 5 lakh per investor.

HDFC bonds on the other hand, although safe, don’t have government insurance. It may be backed by some assets on the books of the company but mostly the debt is backed by investors’ faith in HDFC Ltd. This makes them slightly riskier than HDFC bank deposits.

It is important to mention that HDFC Ltd also issues fixed deposits. It is one of the sources for funds that HDFC Ltd uses to give out home loans to its customers. In terms of safety, they sit between HDFC Bank fixed deposits and HDFC bonds that we discussed above.

HDFC AT1 (Additional Tier 1) bonds, however, are the least secure among all HDFC bonds and retail investors are recommended to seek expert financial advice before investing in them.

Advantages of HDFC bonds

Biggest advantage of HDFC bonds is the AAA rating and backing of HDFC Bank. This makes HDFC bonds very safer for investing and attractive to low risk investors.

Risks of investing in HDFC bonds

HDFC bonds are subject to usual bond risks related to interest rate, liquidity and reinvestment of coupon payments. The credit default risk of HDFC bonds is extremely low.

How to identify the best HDFC bonds?

If you are interested in investing in HDFC bonds, you need to check a few things to identify the best HDFC bonds for you. First, check the maturity date of the bond. While you can trade the bond, it is a good idea to align bond tenure and your investment period. This will help you eliminate risks associated with interest rate and liquidity. Next, find the bond that has the highest yield in your shortlist and invest in it to generate the highest returns.