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Perpetual Bond Explained: What it is? Who issues them? Features?


Perpetual Bond Explained
What is a perpetual bond?
Bonds which do not have any maturity date are called perpetual. Since there is no effective maturity date, these bonds allow the comfort of equity. But on the othere side, the holders' of these bonds need to be paid dividends on a perpetual basis till the bonds are not made to mature by the company.

Who issues them?
Perpetual bonds across the globe are issued to fund the long-term needs of the government, banks and other financial intermediaries. In India, this innovative instrument has found the blessing of the Reserve Bank of India for banks. And now the companies have also started issuing them. The first company to issue Perpetual Bond in India is Tata Power.


What are the features of such bonds in India?
In India, innovative perpetual debt instruments presently qualify as tier-I capital for banks. But there is less clarity on how there is not much spotlight on how it should be categorised for the corporates.

Many experts of the opinion that perpetual bonds could be a savious for infrastructure companies, which require long-term funding avenues.

Who should Invest?
In most countries, insurance and pension funds invest in this instrument. Many experts feel, in India's case it should be no different. But there is also section of advisors who opine that one should wait for perpetual bonds to mature before investing in it.

OneIndia Money

Story first published: Wednesday, June 1, 2011, 15:38 [IST]
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