If you are looking for a stable investment option with guaranteed returns, then investing in PSU (Public Sector Undertaking) bonds can be a great option for you. PSU bonds are issued by public sector companies in India and offer a fixed rate of interest, making them a popular investment choice among risk-averse investors. In this blog, we will provide you with a comprehensive guide to PSU bonds, including what they are, how they work, and the benefits of investing in them.
What are PSU bonds?
PSU bonds are debt instruments issued by public sector companies in India to raise capital for their various projects. These bonds offer a fixed rate of interest, which is paid to the investors at regular intervals until the maturity date. They are considered safe investments because they are backed by the government, and the chances of default are very low.
How do PSU bonds work?
When you invest in PSU bonds, you are essentially lending money to the issuing company. The company uses the funds to finance its projects, and in return, it pays you a fixed rate of interest for the entire tenure of the bond. The interest rate is pre-determined at the time of issuance, and it remains fixed for the entire tenure of the bond. At the end of the tenure, the principal amount is returned to the investor.
Benefits of investing in PSU bonds:
- Guaranteed returns: PSU bonds offer a fixed rate of interest, which is paid to the investor at regular intervals. This makes them a great investment option for risk-averse investors who want a guaranteed income stream.
- Low risk: PSU bonds are backed by the government, which makes them a very safe investment option. The chances of default are very low, which means that you can be assured of getting your money back.
- Tax benefits: The interest earned on PSU bonds is taxable, but investors can claim tax benefits under Section 80C of the Income Tax Act, 1961. This can help investors to save on their taxes.
- Diversification: PSU bonds can be a great way to diversify your investment portfolio. They offer stable returns and low risk, which can help to balance out the riskier investments in your portfolio.
- Liquidity: PSU bonds can be easily bought and sold in the secondary market. This means that investors can easily liquidate their investments if they need to.
Investing in PSU bonds can be a great way to earn stable returns while keeping your investment risk low. These bonds offer a fixed rate of interest, and they are backed by the government, making them a safe investment option. They also offer tax benefits and can help to diversify your investment portfolio. However, investors should always do their due diligence before investing in any financial product, including PSU bonds. They should also consult with a financial advisor to ensure that the investment fits their overall financial goals and risk profile.