Where To Buy State Development Bonds in India?
Let us see what are SDL bonds and where to buy state development bonds in India. Murray Rothbard, an American Economist, said, “savings and investment are indissolubly linked. It is impossible to encourage one and discourage the other.” So, both savings and investments are necessary to grow your money. If you keep your earnings ideally in your savings account, it may not do any good. There are other avenues like bonds, gold, ETFs, and mutual funds that yield higher returns, but they come with certain perils. If you plan to invest in government instruments, you can opt for a few of them like G-Secs, GILT funds, SDL bonds, etc. Here, we’ll be discussing only one debt instrument, i.e., state development loans or SDL bonds. Let’s jump ahead to give a bigger picture on this subject.
What are SDL Bonds?
There are many forms of government investments, and state development loans or SDLs are among them. These bonds are issued by the State Governments and governed and supervised by the Reserve Bank of India (RBI). SDLs are secure compared to regular or traditional bonds and fixed deposits. These bonds are used by the state government when they are out of funds to meet their budget demands. Interest on SDL bonds is distributed to the investors half-yearly. The principal is paid back after the maturity of the instrument.
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Places To Buy SDL bonds Online
SDL bonds are also called Local Government Bonds. Investors interested in government bonds should have in-depth knowledge of this bond. These bonds are issued in almost 30 states in India. This instrument is perfect for less risk-taking investors looking for long-term investments. There’s a higher chance of getting more yield on SDL bonds than central government securities or savings deposits. Here is all you should know about where to buy state development bonds in India.
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Government Portal:
If you want to invest in state development bonds in the primary or secondary market, you can create a GILT account on the RBI-directed official portal. An investor can open the account individually or can tag another individual along. The documents required to open this account include a PAN card, passport, aadhar card, email ID, rupee bank account, and working contact number. To create a new account, click here.
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Online Bond Dealers:
This is another simple way to invest in state development bonds. The upgrade in technologies has eased the online setup process to trade all types of bonds. You can check out this market-linked debt instrument on this leading online bond platform here.
Purchase in an Auction:
The state government puts SDLs for auction weekly. Investors can invest in state development bonds by bidding on them. You can buy them via a Gilt account, or you can create a new NDS-OM account, the platform solely used for trading government securities in the secondary market. This platform is maintained and controlled by the RBI. You can always ask your bank to buy these instruments by representing you.
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What Are The Benefits Of Investing In State Development Loans?
1. Lesser Risk:
If Compared to AAA Corporate bonds, SDL bonds have lesser risks. SDL securities are considered superior to bonds issued by corporates. The RBI has the power to make repayments to SDLs out of the central government allocation to states.
2. Possibility Of Higher Yields:
The yield by these bonds may be higher than the central government benchmark yield.
SDL bonds may provide higher yield above government bond yields. The trading is done through auctions, in the same way as it is conducted for bonds issued by the Central Government.
What Kind Of Mutual Funds Invest In State Development Loans?
SDL bonds may not prove to be a good option for short term debt funds. Generally, the Government and Indian debt markets feature in the Indian Debt Market. Recently, the state development bonds did not receive the required attention because of the lack of supply. However, this is changing over the years as their supply goes up. One can place them somewhere between G-secs and corporate bonds, both in terms of credit risk and spreads.
What Does SDL S Mean For Your Portfolio?
Generally, a State Government that has healthy finances will trade at lower spreads. Sometimes, there may be some concerns amongst market participants about the credit status of SDLs and SDLs’ serviceability resulting in a rise in spreads. But this may correct in the long term.
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Summary
Every year, the state government prepares its budget. Sometimes, the expenses are far from the reach to meet the expectations. So, the state government offers SDLs to the public to fill the monetary gaps in the trajectory. The returns on these debt instruments are far better than fixed deposits or other bonds. You can invest in state development bonds through government portals, online bond platforms, NDS-OM, and a few others.
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