PSU Bonds 2026: Fixed income investors looking for higher returns than traditional bank FDs are now exploring Public Sector Undertaking bonds as a stable alternative. With interest rates ranging between 7.8 percent to 8.5 percent, PSU bonds are attracting conservative yet yield-focused investors who want better returns without moving into high-risk corporate debt. Backed by government-owned companies, these bonds offer a balance between stability and predictable fixed income over medium to long-term tenure.
Interest Rate And Tenure Structure
PSU bonds generally offer fixed coupon rates between 7.8 percent and 8.5 percent depending on issuing company, tenure, and credit rating. Tenure usually ranges from 3 years to 10 years depending on bond series. Interest payout may be annual, semi-annual, or cumulative depending on bond type. Senior citizen extra benefit is usually not applicable unless specified under particular bond issue.
Government-Linked Safety Framework
PSU bonds are issued by government-owned companies such as power, railway, oil, and infrastructure PSUs. While they are not directly sovereign bonds, they carry strong government backing perception due to majority ownership. Credit rating of most PSU bonds generally remains in AAA or AA+ category, indicating high safety compared to private corporate bonds.
Taxation And Liquidity Conditions
Interest earned on PSU bonds is taxable as per investor’s income tax slab. TDS may apply depending on bond type and holding structure. Some PSU bonds are listed on stock exchanges, allowing investors to sell before maturity, but liquidity and market price may vary based on interest rate movement and demand. Capital gains tax may apply if sold before maturity.
Investment Process And Documentation
PSU bonds can generally be purchased through primary public issue, banks, or stock brokers in demat form. KYC documentation including Aadhaar, PAN, and demat account linkage is required. Minimum investment amount usually starts from ₹10,000 or ₹1 lakh depending on bond series. Investors should check credit rating and tenure suitability before investing.
Price And Ownership Reality (Return And Maturity Impact)
Investing ₹5 lakh at 8.0 percent annual coupon for 5 years may generate around ₹40,000 yearly interest before tax. Over full tenure, total interest income may reach around ₹2 lakh excluding reinvestment gains. Compared to bank FD at 7.0 percent, PSU bonds may provide higher annual return but carry slightly higher risk compared to sovereign-backed schemes like PPF or Post Office deposits.
Disclaimer: Final interest rate, credit rating, taxation rules, liquidity conditions, and tenure availability depend on specific PSU bond issue and regulatory guidelines. Investors should verify official offer documents and credit ratings before making investment decisions.