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Perpetual Bonds

Perpetual bonds are debt instruments with no fixed maturity date. Issuers pay periodic coupons, which can be cancelled in certain cases, and repay principal only on exercising a call option. In India, banks issue them mainly as AT1 capital, with limited retail access. Investors can explore credit-rated government and corporate bonds listed on Grip Invest.

perpetual_bonds
  • No Maturity Date
  • Issuer Call Option
  • Issued by banks, NBFCs and Corporates
AT A GLANCE
Bonds At Grip
₹ 4,000 Cr+
Investments Enabled
₹ 100
Minimum Investment
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Key Features Of Perpetual Bonds

  • Call Option: There are perpetual bonds that come with a call option, which means the issuer can redeem the bonds after a specified period. With a call option, the issuer gets the flexibility to manage the debt.

  • No Maturity Date: Perpetual bonds do not mature; hence, they do not have a maturity date. This makes them a unique debt instrument.

  • Coupon Payment: Coupons are paid periodically, but AT1 issuers can cancel them at their discretion, and missed coupons are not paid later.

  • Loss Absorption: Bank AT1 bonds can be written down or converted into equity if the bank's capital falls below a set trigger.

  • Retail Availability: Fresh AT1 issues are open only to institutional investors in INR 1 crore lots, making listed government and corporate bonds the accessible retail option.

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Corporate Bonds
fdWorks
Perpetual Bonds
Maturity
Fixed, as per the issue terms
No fixed maturity
Principal Repayment
At maturity or as per schedule
Only if the issuer exercises the call option
Coupon Payment
Periodic, as per the issue terms
Periodic; can be cancelled for AT1 bonds
Security
Secured or unsecured
Unsecured
Claim Priority
No
Yes, for bank AT1 bonds
Minimum Investment
From INR 1,000 on Grip Invest
INR 1 crore lot for AT1 bonds

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Interest₹20,963

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REASON AND BENEFITS

Benefits Of Investing In Perpetual Bonds

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Periodic Income

Perpetual bonds pay coupons at regular intervals for as long as they remain outstanding, subject to the issuer's payment terms.

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Higher Coupon Rates

Issuers typically pay higher coupons than on their regular bonds, to compensate for subordination, call risk, and loss absorption.

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Diversification

Their hybrid features, sitting between debt and equity, give them a risk-return profile distinct from regular bonds and shares.

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Price Gains When Rates Fall

Their long duration means prices can rise sharply when interest rates decline, though they fall equally sharply when rates rise.

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Who Should Consider Perpetual Bonds?
  • For Long-Term Horizon: Since perpetual bonds do not have a maturity period, it is suitable for investors who have a long-term investment horizon so that their principal amount is compensated in the form of interest received.
  • Portfolio Diversifiers: Perpetual bonds provide fixed income and hence can be helpful for investors who are looking to diversify and add stable income to their portfolio.
  • For Regular Income: Investors who are looking for regular income from investments can consider perpetual bonds as they offer a stable income stream.
  • Informed Investors: Best suited to investors who understand call options, subordination, and AT1 write-down triggers before committing capital.
  • Institutional And HNI Investors: With INR 1 crore trading lots for AT1 bonds, these instruments largely suit institutions and investors with large investable surplus.
  • Investors should assess their financial goals, risk appetite, and liquidity needs before investing. Those seeking a defined maturity and lower risk can consider corporate bonds and government bonds instead.
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OTHER OFFERINGS

Other Secured Fixed-Income Products By Grip Invest

Corporate Bonds

Corporate Bonds

  • Securities issued by corporates & NBFCs
  • Up to 14% pre-tax YTM
  • Start investing with Rs 1,000
  • Exchange listed and credit rated
InvoiceX

InvoiceX

  • Loans backed by Invoice Discounting
  • Up to 14% pre-tax YTM
  • Start investing with Rs 1,00,000
  • SEBI/RBI complaint and credit rated
LoanX

LoanX

  • Diverse pool of loans from top NBFCs
  • Up to 14% pre-tax
  • Start investing with Rs 1,00,000
  • SEBI/RBI complaint and credit rated
Baskets

Baskets

  • Theme based investing
  • Up to 14% pre-tax YTM
  • Start investing with Rs 5,000
  • SEBI/RBI complaint and credit rated
Corporate FDs

Corporate FDs

  • High Yield Fixed Deposit Investments
  • Up to 10% pre-tax
  • Start investing with Rs 1,000
  • SEBI/RBI compliant and credit rated
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For your knowledge

Risks Involved In Investing In Perpetual Bonds

  • Credit Risk Of The Issuer: Perpetual bonds include credit risk. In case the issuer of the bond becomes bankrupt, you may not be able to receive further interest payments. Moreover, a downgrade in the issuer’s credit rating may also affect the stream of payments and the bond’s value. The risk of default often pertains to these perpetual bonds.
  • Interest Rate Risk: Interest rate risk is the possibility of losing a bond’s value due to fluctuations in interest rates. As interest rates increase, the bond’s value falls since the attractiveness of a lower-yielding bond falls. Alternatively, if interest rates fall, the bond’s value increases. This is due to the inverse relationship observed in bonds and interest rates.
  • Risk From Call Option: The call option embedded in perpetual bonds allows issuers to call the bond after a while. This leads to an increased call risk for the investors. This feature is especially risky during phases when interest rates fall, as issuers may avail the call option to redeem and reissue the bond at lower interest rates.
  • Extension Risk: It is also possible that the issuer may not exercise the call option when the interest rate rise or when the issuer faces financial difficulties. Due to this investors will not be able to get the principal back. The issuer will only exercise the call option when the interest rate goes down.
  • Coupon Cancellation Risk: The issuers of AT1 perpetual bonds can cancel the coupon as well on their discretion. It can also be done due to regulatory conditions. Once canelled the coupons are never paid later.
  • Write-Down Risk: Perpetual bonds issued by banks such as AT1 bonds can be written down as well if the issuing bank’ capital breaches regulatory triggers, as seen in YES Bank's 2020 restructuring.
  • Liquidity Risk: The secondary market for perpetual bonds is thin and the trading volumen is very low. Due to this, liquidity for these bonds becomes difficult if investors want to sell them before the call.
  • Subordination Risk: In case of liquidation of the issuer the investors of perpetual bonds are repaid only after the depositors and all other creditors are repaid. This makes the changes of recovery of the investments very low.

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To help you

Frequently Asked Questions

What is a perpetual bond?

A perpetual bond is a bond that has no maturity date. Investors receive regular coupon payments indefinitely, unless the issuer decides to exercise its call option to redeem these bonds. In India, most perpetual bonds are issued by banks as Additional Tier 1 (AT1) capital.
AT1 bonds are a type of perpetual bond issued by banks to meet Basel III capital requirements. All AT1 bonds are perpetual, but not all perpetual bonds are AT1 bonds. NBFCs and corporates also issue perpetual debt instruments, which carry different terms and may not include AT1-style write-down features.
By definition, perpetual bonds do not have a maturity date. This means the investor will indefinitely receive coupon payments. Therefore, without a maturity date, it is not possible to redeem the bonds. However, investors have the opportunity to sell the bonds in the secondary market. Additionally, perpetual bonds come with an embedded call option. This allows the issuer to call the bond after a certain period has passed. This is usually 5 years or more.
Yes, listed perpetual bonds can be sold in the secondary market, where their price fluctuates with interest rates. As interest rates rise, the price of perpetual bonds may fall and vice versa.

 

Fresh issues of bank AT1 bonds are open only to qualified institutional buyers, with a minimum allotment of INR 1 crore. Other investors can buy listed perpetual bonds in the secondary market through a stockbroker and a demat account, subject to minimum lot sizes.
Perpetual bonds are not suitable for all investors. Firstly, they are high-risk investments and, therefore, are not suitable for investors with low risk tolerance. Institutional investors who require a regular stream of income in the long run consider investing in these perpetual bonds. Alongside, investors who are looking for steady and safe returns periodically may also invest in these.
Interest earned from perpetual bonds is taxable as per the investor's income tax slab. If the investor sells perpetual bonds in the secondary market, capital gains tax applies based on the holding period. Short-term capital gains (STCG), i.e., held for a duration of up to 12 months, are taxed according to the tax slab rate of an investor. Long Term Capital Gains (LTCG), i.e., held for a duration of more than 12 months, are taxed at 12.5% for listed bonds (without indexation benefit) and 20% for unlisted bonds.
Perpetual bonds are issued mainly by banks, NBFCs and large corporates to raise long-term capital without a repayment date. Banks issue them as AT1 capital to meet Basel III capital adequacy norms, while NBFCs use perpetual debt to strengthen their Tier 1 capital. In liquidation, these bonds rank above equity shareholders but below all other creditors.
Perpetual bonds generally pay higher coupons than the same issuer's regular bonds, to compensate for subordination, call risk and loss absorption. The actual rate depends on the issuer's credit profile, the bond's rating and prevailing interest rates. Coupons are usually paid annually, and AT1 coupons can be cancelled at the issuer's discretion.
Perpetual bonds are rated separately from their issuer. Because of their subordination and coupon discretion, AT1 bonds are typically rated a few notches below the issuer's senior debt. For example, a bank rated AAA may carry an AA-category rating on its AT1 bonds. Investors should check the rating of the specific bond, not just the issuer.
  • The yield is calculated on the basis of the coupon payments and the current market price of the perpetual bond.
  • Formula: Yield of Perpetual Bonds = C/P, wherein C refers to coupon payments and P refers to the current market price.
  • For example, if a bank has issued the following perpetual bond:
  • Face Value: INR 1,00,00,000
  • Coupon Rate: 8.5%
  • Annual Coupon Payment (C) = INR 8,50,000
  • Current Market Price (P) = INR 98,00,000
  • Calculation:
  • Yield = (8,50,000/98,00,000) × 100% = 8.67%
    • Grip Invest does not currently offer perpetual bonds. Investors seeking fixed-income options can explore credit-rated government bonds starting at INR 100 and corporate bonds starting at INR 1,000 on Grip Invest, with the option to sell their units anytime.

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