Key points to know about ₹19,500 crore NABARD zero-coupon bonds

The Central Board of Direct Taxes (CBDT) has notified the ₹19,500 crore zero-coupon bonds of National Bank for Agriculture and Rural Development (NABARD). The notification dated June 12, 2025, came after the government approved NABARD's proposal to raise ₹19,500 crore through the zero-coupon bonds.

This article explains the key points investors should know about the NABARD's zero-coupon bonds.

According to the CBDT's notification, NABARD can issue the zero-coupon bonds till May 31, 2027. A total of 19.50 lakh bonds will be issued at a total discount of ₹10,348.625 crore.

These bonds are known as zero-coupon bonds as they do not propose to offer any periodic interest or return. Instead, buyers can purchase these bonds at a discount and get the full face value on redemption at maturity. Therefore, for taxation purposes, these bonds are also known as deep-discount bonds.

These zero-coupon bonds will mature in 10 years, 11 months and 13 days. On maturity, NABARD will pay a total maturity amount of ₹19,500 crore to investors.

How do investors gain from zero-coupon bonds?

The difference in the purchase price paid by the buyer and the price paid by the bond issuer on maturity represents the investor's profit. In other words, the profit from a zero-coupon bond is the difference between the purchase price and the face value. The profit is taxable as income from capital gain on transfer or redemption, and not annually.

Fifth bond issue

In recent months, NABARD is the fifth government-run firm that has issued bonds. Other organisations are REC, Power Finance Corp (PFC), Housing and Urban Development Corp (HUDCO) and Indian Railway Finance Corp (IRFC). All these government-run companies will complete their fundraising by March 2027, according to Reuters.

NABARD's bonds have been announced at a time when weak investor demand recently led PFC to withdraw its zero-coupon bonds for the second time in over a month. The PFC planned to raise ₹2000 crore through the zero-coupon bonds. However, according to a Business Standard report dated June 9, 2025, it could receive bids worth only ₹1470 crore.

However, in September last year, REC had raised ₹5000 crore through zero-coupon bonds at an effective yield of 6.25% per annum. These bonds were oversubscribed by nearly seven times the issue size of ₹5000 crore.

Are they worth it?

The deep-discount model also offers potential tax efficiency under the current capital gains regime, where LTCG on listed bonds is taxed at 12.5% without indexation.

However, before investing in this or any other bond product, you should consult your financial advisor to find whether they fit in your portfolio and financial goals.