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PSU Bonds in India (2025): Fixed Income Safety Backed by Government

If you're looking for stable investment options with relatively lower risk, PSU bonds often show up as a strong contender. Favoured by both conservative and experienced investors, these bonds are backed by government-linked enterprises, offering a balance of safety and decent returns.

They’re especially popular during uncertain market conditions, thanks to the trust investors place in Public Sector Undertakings. Whether you’re building a fixed-income portfolio or simply exploring alternatives to bank FDs, PSU bonds can play a key role.

In this guide, we’ll break down everything you need to know—from how they work to why they’re considered a smart option by many long-term investors.

What Is a PSU? 

PSU means Public Sector Undertaking – a company where the Indian government owns most of the shares (more than 51%).

Some PSU examples include:

  • NTPC (National Thermal Power Corporation)
  • ONGC (Oil and Natural Gas Corporation)
  • REC (Rural Electrification Corporation)
  • NHAI (National Highways Authority of India)
  • IRFC (Indian Railway Finance Corporation)
  • SBI (State Bank of India)

These are big, trustworthy names that most people in India know.

What Are PSU Bonds?

The full form of PSU bonds is Public Sector Undertaking bonds. These are bonds issued by companies that are owned by the Indian government.

In simple words, when you buy a PSU bond, you are giving a loan to a government-owned company. In return, the company promises to give you interest regularly and return your money on a fixed date (called maturity).

These companies use your money to build things like roads, power plants, or railway lines. Since the government owns these companies, your money is considered safe.

How Do PSU Bonds Work?

Let’s say NTPC wants to build a power station and needs ₹1,000 crore. Instead of taking a bank loan, NTPC sells PSU bonds to people like you. You give them ₹1,000 and they promise to:

  • Pay you interest (called coupon) every year or every 6 months

  • Return the full amount (₹1,000) after 5–10 years

This process is similar to lending money, but in this case, it’s to a large, government-backed company with a strong track record of stability and timely repayments.

Types of PSU Bonds

Here are the types of PSU bonds you may come across:

Type

Simple Explanation

Fixed Rate Bonds

You get the same interest rate for the full term.

Floating Rate Bonds

The interest rate changes based on the market.

Tax-Free Bonds

You don’t have to pay tax on the interest you earn.

Inflation-Linked Bonds

Your earnings increase if prices in the market rise.

Zero Coupon Bonds

You don’t get yearly interest, but you buy it cheap and get full value later.

Callable/Puttable Bonds

The company can buy back early (callable), or you can sell early (putable).

PSU Bonds Interest Rates

Interest rates on PSU bonds can vary, but they usually range from 8% to 11%, depending on the company and credit rating.

For instance, if you invest ₹1,00,000 in a PSU bond with 9% interest, you’ll earn ₹9,000 every year until the bond matures.

Some bonds have higher rates but may come from companies with lower credit ratings. Always check the bond’s rating before buying.

Why Should You Invest in PSU Bonds?

Here’s why many Indians trust PSU bonds:

  1. Safe investment – These bonds are issued by Public Sector Undertakings (PSUs), which are backed by the government. This adds a strong layer of security and reduces the chances of default, making them ideal for conservative investors.
  2. Fixed income – PSU bonds pay you a regular interest (called a coupon), which means you get a predictable stream of income every 6 months or annually—something that’s hard to find in most other market-linked investments.
  3. Good for tax saving – Certain PSU bonds, especially tax-free bonds, offer interest income that is exempt from tax under Section 10(15)(iv)(h) of the Income Tax Act. This can significantly increase your post-tax returns.
  4. Portfolio balance – If your investments are mostly in equity or mutual funds, adding PSU bonds can bring in much-needed stability. They’re less volatile and act as a cushion during market downturns.
  5. Long-term goal – PSU bonds usually have a maturity period of 5 to 10 years, making them suitable for long-term investors who are looking to park their money safely and earn consistent returns without the daily noise of the stock market.

Whether you're new to fixed-income products or looking to lower the risk in your portfolio, PSU bonds offer a dependable option.

Who Should Invest?

PSU bonds are perfect for:

  • Safety-first investors – If your priority is capital protection with steady income, PSU bonds fit the bill due to their government backing.
  • Tax-conscious individuals – Some PSU bonds, especially tax-free ones, help reduce your taxable income—ideal for those in higher tax brackets.
  • Long-term planners – If you're saving for your child’s education, retirement, or other future milestones, PSU bonds offer a predictable way to grow your money.
  • Market-wary investors – Not comfortable with stock market volatility? PSU bonds provide stability with regular returns, without daily price swings.

How to Buy PSU Bonds?

Investing in PSU bonds is simple and convenient. Here’s how you can do it:

  • During Public Issues – Subscribe to new PSU bond offerings when they're announced to the public.
  • From the Stock Market – Purchase listed PSU bonds on the secondary markets through your broker.
  • Via Bondbazaar – Explore and invest in 10,000+ bonds on one platform, see live prices, and complete your investment online in just a few clicks.

Why Choose Bondbazaar?

At Bondbazaar, we aim to make bond investing accessible and hassle-free for everyone. Here's why investors prefer us:

  • Zero Charges – No account opening fee, no hidden charges, and zero brokerage.
  • High Liquidity – Buy or sell bonds anytime with ease.
  • Widest Selection – Access over 10,000 bonds, including highly rated PSU bonds.
  • Expert Assistance – Get guidance from professionals to help you make informed decisions.

Whether you're just starting out or expanding a diversified portfolio, Bondbazaar offers a smooth, transparent, and investor-friendly bond investment experience.

Conclusion

If stability, predictable returns, and long-term value are what you’re after, PSU bonds deserve a spot in your investment strategy. With their strong track record and government backing, they bring confidence to any portfolio, especially during uncertain times. At Bondbazaar, we make it easy to explore your options, compare offerings, and invest smartly, all in one place.

So, whether you're planning for the future or simply seeking dependable income, PSU bonds can help you stay on course with clarity and control.