Perpetual Bonds

PERPETUAL BOND, which is also known as a ‘perpetual’ or ‘perp’, is a bond with no maturity date.  As the name suggests, they are perpetual in nature i.e. they donot have any maturity date.  However,  an option would be given to the investor to redeem them after a certain period – say 5 years or 10 years. Please note that the issuer of the bond can redeem them at any point of time at its  option. Thus in a case where interest rates are falling drastically, the issuer can redeem the old bonds and issue fresh bonds.

Recently a number of Banks like Bank of India, Bank of Maharashtra and IDBI Bank have issued such bonds.  These bonds are traded in the market on NSE / BSE  and the net yield, based on the market price, is very attractive compared to the Fixed Deposit interest rates of Banks.  At present you can get these bonds from the market with a pre tax yield of 9.50 to 10.00 % which is very attractive. The market lot is of Rs 10 lakhs. In other words the minimum investment has to be Rs 10 lakhs or above.

High net worth individuals can think of investing in these bonds for the very good return they are offering.