More About Ultra Short-Term Bonds – Maturity within 6 Months

This collection may include corporate non-convertible debentures (NCDs), PSU bonds and select bank bonds that are in the final six months of their maturity period. The remaining time until maturity is known as residual maturity.

A shorter remaining period can reduce the time your money is committed. However, it does not remove credit risk or liquidity risk, and the market price of a bond can still change before maturity.

What are Ultra Short-Term Bonds Maturing within 6 Months?

Ultra short-term bonds are listed debt securities with a residual maturity of six months or less. Residual maturity means the time left until the bond reaches its scheduled maturity date. The collection may include corporate NCDs, PSU bonds, government securities and select bank bonds, depending on current listings.

When you buy a bond, you lend money to the issuer. The issuer agrees to pay interest, known as the coupon, according to the payment schedule and repay the principal on the maturity date. Interest may be paid monthly, quarterly, half-yearly, yearly or at maturity, depending on the bond terms.

These bonds are sometimes searched for as six-month bonds or short-tenure bonds. Always check the actual maturity date rather than relying only on the category name.

Why Investors Pick a Short-Term Window

A bond with six months or less remaining maturity may be considered for different short-term financial needs:

1.       Planning for a near-term expense. If you expect to need funds for a tax payment, education fee, planned purchase or other expense, you can compare the bond’s maturity date with your expected payment date. Remember that repayment depends on the issuer meeting its obligations.

2.       Keeping funds invested for a shorter period. Some investors prefer not to commit money for several years. Bonds with a shorter remaining maturity may offer a defined timeline, subject to the bond terms and issuer risk.

3.       Comparing other short-term fixed-income options. Treasury Bills are issued by the Government of India in 91-day, 182-day and 364-day tenures. Corporate bonds with a similar remaining maturity may offer another option to compare, but their credit and liquidity risks are different from those of government Treasury Bills.

A Simple Example

Suppose you invest ₹10,000 in a bond with a six-month remaining maturity and an annual coupon rate of 9%, paid quarterly. If the bond pays equal quarterly interest and the payment dates fall within your holding period, each full quarterly coupon on ₹10,000 would be ₹225 before tax. The issuer is due to repay the ₹10,000 principal at maturity, along with any interest then payable, subject to meeting its obligations.

This is a simplified illustration. The actual amount and timing of interest can depend on the bond’s payment dates, settlement date, purchase price, accrued interest and specific terms. A bond’s yield to maturity may also differ from its coupon rate.

Risks to Understand

A shorter maturity does not remove all investment risks. Consider these points before investing:

• Credit risk. The issuer may face financial difficulty and could delay or fail to pay interest or principal. A bond with an A rating generally carries more credit risk than a comparable AAA-rated bond. Ratings are opinions and are not guarantees of repayment.
• Liquidity risk. There may be limited buyers for some bonds in the secondary market. If you want to sell before maturity, you may not find a buyer quickly or at the price you expect.
• Reinvestment risk. When the bond matures, the interest rates available on new investments may be lower than the rate on your existing bond.
• Market price risk. Bond prices can change due to interest rates, market conditions and changes in the issuer’s credit profile. If you sell before maturity, you may receive more or less than your purchase price.

How to Invest in Ultra Short-Term Bonds on GoldenPi

GoldenPi is an online bond platform. You can explore available bond listings, compare their details and follow the steps below to invest:

• Log in to your KYC-verified GoldenPi account.
• Open the Ultra Short-Term Bonds – Maturity within 6 Months collection.
• Compare bonds by credit rating, yield, interest payment frequency, issuer and maturity date.
• Read the bond details and relevant offer or disclosure documents, including the risks.
• Select the bond and make the payment using an available payment method shown on the platform, such as NEFT, RTGS or UPI, where supported.
• After the transaction is completed and settled, the bond holding will be reflected in your demat account.

Taxation

Interest is taxed at your slab rate. TDS at 10% applies to listed corporate NCDs when annual interest from one issuer crosses Rs. 10,000 (Section 193 of the Income Tax Act).

For bonds sold within 12 months of purchase, capital gains are taxed at a slab rate. Beyond 12 months, the long-term capital gain on a listed bond is taxed at 12.5% without indexation under the Finance (No. 2) Act, 2024.

Since the residual maturity here is 12 months or less, a buy-and-hold strategy means any gain typically falls under the short-term bucket.

Conclusion

Ultra short-term bonds may be considered by investors who want to explore fixed-income options with six months or less remaining until maturity. The collection may include bonds from different types of issuers, with different credit ratings, yields and interest payment schedules.

A shorter holding period can help with planning for a near-term cash requirement, but it does not make a bond risk-free or ensure that it will offer better returns than a bank fixed deposit or liquid fund. Before investing, review the bond’s rating, issuer information, maturity date, yield, liquidity and offer documents.

GoldenPi’s listings provide details to help you compare available bonds. Always check the latest information on the platform before making an investment decision.