NBFC bonds offer fixed-income investors higher yields than traditional bank fixed deposits while providing regular interest payouts. Issued by Non-Banking Financial Companies, these debt instruments can be purchased through primary market public issues or secondary market trading on BSE/NSE platforms.​

What Are NBFC Bonds?

NBFC bonds are debt securities issued by Non-Banking Financial Companies (NBFCs) to raise capital for lending and business expansion. In return for investing your money for a fixed tenure, NBFCs pay regular interest (coupons) and return the principal on maturity. These bonds are regulated by SEBI and RBI, typically rated by agencies like CRISIL, ICRA or CARE, and offer tenors ranging from 12 months to 10+ years with yields often exceeding 9-12% depending on credit rating and market conditions.

Step-by-Step Guide: How to Invest in NBFC Bonds

Primary Market (NCD Public Issues)

1. Open Demat & Trading Account: Ensure you have an active Demat account and trading account with a SEBI-registered broker like JM Financial Services
2. Check Upcoming Issues: Monitor BSE/NSE websites or platforms like Bondskart for NCD calendars.
3. Select Preferred Series: Review offer documents for coupon rates, tenors, security (secured/unsecured), ratings and redemption terms.
4. Apply Online: Use ASBA (through bank) or UPI mandate via broker platforms, NSEgoBID or BSE Direct for retail applications up to ₹5 lakh.
5. Allotment & Listing: NCDs are allotted basis subscription and credited to your Demat account post-allotment for trading.​

Secondary Market (Listed Bonds)

1. Access Bond Platforms: Use brokers like JM Financial Services or dedicated platforms like , Bondskart.
2. Filter by Criteria: Sort bonds by yield, rating (AAA to BBB+), tenor, frequency (monthly/quarterly/annual) and minimum investment (typically ₹10,000).
3. Place Buy Order: Execute market/limit orders during trading hours; bonds trade like stocks on BSE/NSE debt segments.
4. Settlement: T settlement; bonds appear in your Demat account.

Types of NBFC Bonds

• Secured NCDs: Backed by specific assets (charge on receivables, property); safer option.

• Unsecured NCDs: No specific collateral; higher yields but riskier.
• Subordinated Bonds: Lower claim priority in default; highest yields.
• Callable Bonds: Issuer can redeem early at predefined dates.
• Perpetual Bonds: No maturity; interest-only payments indefinitely.

Strengths

• Higher yields (9-12%+) vs bank FDs and G-Secs.​
• Regular income through fixed coupons (monthly/quarterly/annual).​
• Portfolio diversification beyond equities and FDs.
• Liquidity via secondary market trading on BSE/NSE.​
• Tax-efficient LTCG (12.5% above ₹1.25 lakh after 1 year for listed).​
• Wide choice across ratings, tenors and issuers.

Risks

• Credit risk if NBFC defaults (higher for BBB/BB ratings).​
• Interest rate risk (bond prices fall when rates rise).
• Liquidity risk in secondary market for lower-rated bonds.
• No DICGC insurance unlike bank FDs (up to ₹5 lakh).​
• Reinvestment risk when coupons need redeployment.
• Callable bonds may be redeemed early during falling rates.​

Taxation of NBFC Bonds

• Interest Income: Taxable as per slab rate; TDS applies above ₹5,000 p.a.
• Listed Bonds: STCG (<12 months) at slab rates; LTCG (>12 months) @12.5% above ₹1.25 lakh.
• Unlisted Bonds: LTCG threshold is 24 months.
• Indexation benefits available for unlisted long-term gains.​

FAQs – How to Invest in NBFC Bonds

Q1: What is the minimum investment in NBFC bonds?
Typically ₹10,000 (10 bonds of ₹1,000 face value), though some platforms accept ₹1 lakh minimums.​

Q2: Are NBFC bonds safe?
Depends on rating: AAA/AA bonds from reputed NBFCs are relatively safe; avoid unrated/BB bonds unless high risk tolerance.

Q3: How do NBFC bonds compare to FDs?
Higher yields but no deposit insurance; tradable in secondary market unlike FDs.

Q4: Can I sell NBFC bonds before maturity?
Yes, if listed on BSE/NSE; unlisted bonds held till maturity only.

Q5: Which NBFCs issue good bonds?
Bajaj Finance, HDFC, L&T Finance, Shriram Finance (AAA/AA); PNB Housing, IIFL (A/BBB+).

Q6: Is KYC required to buy NBFC bonds?
Yes, standard KYC via Aadhaar, PAN and bank details; e-KYC completes in minutes on most platforms.

Q7: Are NBFC bond interest payments taxable?
Yes, added to income and taxed at slab rates; TDS deducted above ₹5,000 annual interest. ​