The information provided are for general consumption only. Do not construe this as an offer/advice/research to buy/sell any securities
SBI Bonds are bonds issued by the largest bank in the country, State Bank of India. State Bank of India is a public sector bank and identified as a ‘systemically important bank’ by RBI. This makes the bonds of SBI low risk. Even credit rating agencies like CRISIL, CARE and ICRA have rated SBI AAA which is the highest credit rating.
SBI bonds are bonds issued by the State Bank of India, the largest PSU bank of India. PSU stands for Public Sector Undertaking, a term for government owned companies in India.
State Bank of India. The bank serves more than 45 crore customers and has pan India operations.
SBI bonds are extremely safe. However, they are not risk free. Only government bonds (G-Secs and SDLs) are said to be risk free because of the sovereign guarantee.
All long term bonds, with the exception of Additional Tier 1 bonds, are rated AAA by CRISIL. The Additional Tier 1 SBI bonds are rated a notch lower at AA by the credit rating agency.
SBI bonds are neither tax-free nor tax exempt.
SBI bonds offer an interest rate of around 7.7% (issued in 2021) on its Additional Tier 1 bonds. On the normal bonds issued in 2020, the interest rate offered was 6.8%.
Taxation of interest of SBI bonds: Interest earned from SBI bonds is taxed as per your marginal income tax slab rate.
Taxation on capital gains of SBI bonds: For listed SBI 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 State Bank of India 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.
SBI fixed deposits are among the most invested instruments in India. This is due to the popularity of both SBI and fixed deposits. They are considered to be extremely safe due to the trust in the bank and 5 lakh government insurance on deposits.
SBI bonds are also quite safe but not explicitly insured by the government like SBI fixed deposits. Hence, you will get a higher return on SBI bonds than SBI fixed deposits.
It is important to note that SBI also issues AT1 (Additional Tier 1) bonds. These bonds are not suitable for retail investors. If you are interested in SBI AT1 bonds, you must seek expert financial advice before investing in them.
The biggest advantage of SBI bonds is the safety associated with them. They are AAA rated and the bank is owned by the government. Because of the trust SBI evokes, SBI FD investors may consider SBI bonds for investing to earn higher returns from the same financial institution.
Because SBI bonds are quite safer, the interest rate and returns offered by them is quite low (among AAA rated instruments). Hence, investors looking to invest for higher returns may not find SBI bonds attractive. Apart from this, SBI bonds are subject to other risks like interest rate risk, liquidity risk and reinvestment risk. These risks are applicable to almost all bonds and can be mitigated/eliminated.
The best SBI bonds will have the highest interest rates/yield to maturity and a maturity period that matches your investment period. By investing in a bond that matches your investment period and holding it until maturity, you eliminate risks associated with interest rates and liquidity.
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