State Guaranteed Bonds

State Guaranteed Bonds are issued by State-Owned Enterprises (SOEs) or PSUs and guaranteed by the state governments. These bonds are considered a safe investment option, as backed by the state government if the issuer defaults on principal and/or interest payments. This provides an extra layer of protection for the investors. It offers predictable returns and ideal for risk averse investors.

These bonds usually offer high yield as compared to government securities. This additional spread compensates investors for the slightly higher risk associated with state government borrowing.

Here are list of few state government enterprises issuing state guaranteed bonds:

There are two common types of state-backed investments. Bonds issued by the state governments are known as State Development Loans (SDLs). State Guaranteed Bonds are issued by state government owned enterprises and guaranteed by the state government. 

The taxation on state guaranteed bonds is similar to corporate bonds. The interest income earned from a state guaranteed bond is taxed as per the income tax slab of the investors.

Capital gains of state guaranteed bonds are taxed depending on how long an investor has held the bonds. If an investor sell bonds within 1 year, it is refereed to as Short Term Capital Gains (STCG) and is taxed according to the tax slab rate of an investor. On the other hand, if an investor sell bonds above 1 year, it is refereed to as Long Term Capital Gains (LTCG) and is taxed @12.5% for listed bonds (without indexation benefit). Know implications of tax on bonds before investing to know actual returns.