Secured Bonds

Secured Bonds are debt instrutment backed by collateral (such as machinery, land or receivables) of the issuer. This collateral acts...

Secured Bonds are debt instrutment backed by collateral (such as machinery, land or receivables) of the issuer. This collateral acts as a safety net for bondholders and can be used to recover dues if the issuer defaults on principal and interest payments. These bonds are ideal for conservative, risk-averse investors seeking stable returns and a higher level of capital protection.

High returns

Earn fixed returns of up to 13.25%

Low investment

Start investing with as little as ₹1,000

Low risk

Invest in AAA–BBB rated bonds

No brokerage

0% brokerage or commission fees

Google Play Store

4.5_/5

15.5L Reviews

5.7cr+Satisfied Customers

₹3,064 CrsInvestment Enabled

100+Bonds

Invest as Low as ₹1000 & Getup to 13.25% Returns

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High returns

Earn fixed returns of up to 13.25%

Low investment

Start investing with as little as ₹1,000

Low risk

Invest in AAA–BBB rated bonds

No brokerage

0% brokerage or commission fees

Google Play Store

4.5_/5

15.5L Reviews

5.7cr+Satisfied Customers

₹3,064 CrsInvestment Enabled

100+Bonds

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What are Secured Bonds

Secured bonds are a type of bond backed by a legal claim on the issuer’s specified property (collateral) in the case of the issuer’s default in repayment of principal and interest. These bonds are governed by the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. Secured bonds offer lower interest to their bondholders than unsecured bonds, as the risk is relatively higher in the latter case.

How to Buy Bonds through Paisabazaar?

Get up to 13.25% from bonds in 5 simple steps

Step 1: Login to your Paisabazaar account

Step 2: Select the Bonds

Step 3: Complete the KYC process

Step 4: Enter bank details

Step 5: Link your demat account

Features of Secured Bonds

Secured bonds are backed by specific collateral, such as receivables, machinery or cash, reducing the investor’s default risk.
These bonds also include subcategories, senior secured bonds which rank higher than the bondholders of subordinated secured bonds and unsecured bonds.
It provides predictable and stable returns until maturity, as role of collateral ensures lower risk exposure, especially during economic downturns.
According to SEBI regulations, a debenture trustee is appointed to monitor the security cover of bonds for investors.
The bonds help bondholders to balance equity market volatility in their portfolio, ensuring stable returns and financial safety.

Types of Secured Bonds

Senior Secured Bonds

Senior secured bonds are both “secured” by collateral and “senior” in ranking. This means a senior secured bondholders are paid before subordinated secured bondholders and unsecured bondholders if the issuer goes on liquidation.

Subordinated Secured Bonds

A subordinated secured bond is also backed by specific assets but ranks lower in the repayment hierarchy than other secured debt. These bondholders are paid principal amount and interest due after senior secured bondholders have been fully satisfied from the proceeds of the shared collateral.

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Secured Bondholder’s Rights and Recovery in Liquidation

Under the Insolvency and Bankruptcy Code, 2016 (IBC), secured bondholders are referred as ‘secured financial creditors’. Investors have rights to get high priority in the waterfall mechanism, as per Section 53 of IBC, during the liquidation of the invested company. The bondholders have two options - relinquish it to the liquidation estate or enforce their security independently.

In the case of relinquish security option, the bondholder shares priority pari-passu with workmen’s dues. They are ranked second in the waterfall mechanism and gives the right to liquidator to sell the collateral as part of the liquidation estate.
In the case if bondholder chooses to enforce/sell the specific collateral themselves, they can realize outside liquidation estate. They have to contribute a proportionate share towards the cost of Insolvency Resolution Process Costs (IRPC) and workmen’s dues.

Secured Bonds vs. Unsecured Bonds

Differentiation Factor	Secured Bonds	Unsecured Bonds
Collateral	Backed by specific company assets	No collateral
Repayment Priority	Paid before unsecured creditors	Paid after secured creditors
Risk/Return	Lowest risk and offers lower interest rates comparatively	Higher risk, higher returns
Preferred By	Conservative & risk-averse investors seeking seeking capital protection and steady returns	Aggressive investors seeking higher returns

Who Should Invest in Secured Bonds

Risk-averse investors, senior citizens and retirees seeking capital protection and fixed returns.
Conservative investors seeking steady fixed returns and wants to avoid equity market volatility.
Those looking to balance and diversify their investment portfolio with safer and secured debt instruments.

Tax Implications on Secured Bonds

The taxation on bonds is similar to other coupon paying corporate bonds. It involves two components, i.e., tax on interest income and tax on capital gains.

Interest Income

The interest income earned from a bond is taxed as per the income tax slab of the investors.

Capital Gains

Capital gains of bonds are taxed depending on how long an investor has held the bonds. If an investor has held bonds for a period of up to 1 year, it is refereed to as Short Term Capital Gains (STCG). It is taxed according to the tax slab rate of an investor.

If an investor has held bonds for a period of above 1 year, it is refereed to as Long Term Capital Gains (LTCG). It is taxed @12.5% for listed bonds (without indexation benefit) and 20% for unlisted bonds.

Things to Know Before Investing in Secured Bonds

Investors should assess issuer’s creditworthiness and read the offer document carefully before investing in bonds.
Check the terms and conditions of secured and unsecured bonds. And, if it is a secured bond, evaluate the quality of collateral.
Further, this also includes monitoring interest rate and inflation trends, understanding market liquidity and considering diversification strategies.
Know your risk appetite, implications of tax on bonds to calculate post tax returns and invest in bonds accordingly.

How to Buy Bonds through Paisabazaar?

Get up to 13.25% from bonds in 5 simple steps

Step 1: Login to your Paisabazaar account

Step 2: Select the Bonds

Step 3: Complete the KYC process

Step 4: Enter bank details

Step 5: Link your demat account

FAQs

A secured bond is a financial instrutment backed by an specified asset or collateral (such as real estate, tangible assets, or receivables) that provides capital protection when issuer defaults.

Investing in secured bonds is generally considered safer than unsecured bonds or equity. However, these bonds are not entirely risk-free. Their primary safety feature is that secured bonds are backed by specific assets or collateral, which can be sold to repay principal and interest in the case of company’s liquidation.

Investors can buy secured bonds either during a public issue (i.e., primary market) or through NSE or BSE (i.e., secondary market), where bonds are traded after issuance, using a demat account. Investors can also invest through SEBI-registered Online Bond Platform Providers (OBPPs) for a streamlined and digital process.

The collateral for secured bonds may include land and buildings, receivables, machinery, or other financial assets. The specific collateral or asset is mentioned in the offer document of the bond or information memorandum.