Investors seeking diversification opportunities beyond traditional equity and precious metal investments are increasingly turning to Power Finance Corporation 's zero coupon bonds (ZCB). The Maharatna public sector unit has launched these bonds with a tenure of 10 years and 1 month, offering attractive tax benefits and competitive returns.

Tax Advantage Framework

The zero coupon bonds provide significant tax efficiency compared to traditional fixed income instruments. According to Gautam Nayak, Partner at CNK and Associates LLP, gains on redemption qualify as long-term capital gains rather than interest income when held for more than 12 months. This classification results in taxation at 12.5% long-term capital gains tax plus 4% education cess, substantially lower than the 30.9% tax rate applicable to high-bracket investors on regular income.

"Zero Coupon bonds are getting traction from ultra HNIs in the high tax bracket, as income is treated as capital gains here," notes Suresh Darak, CEO of Bondbazaar.

Investment Structure and Returns

The bond offering presents different pricing tiers based on investment amounts:

Comparative Analysis with Other Investment Options

The PFC zero coupon bonds demonstrate superior post-tax returns compared to alternative fixed income investments:

Market Dynamics and Capital Appreciation Potential

Wealth managers anticipate additional returns through capital appreciation opportunities. Vikram Dalal, Managing Director of Synergee Capital, suggests that declining interest rates could provide further benefits. "As interest rates head down by 25-50 basis over the next 12-18 months, investors could earn a capital appreciation of 2-4%," Dalal explains.

Issue Details and Liquidity Features

The public issue of secured PFC bonds remains open until January 30, with provisions for early closure if oversubscribed. The bonds will be listed on stock exchanges, providing interim liquidity to investors during the tenure period. This listing feature distinguishes the offering from traditional fixed deposits and enhances investor flexibility.

Power Finance Corporation has announced plans to raise ₹5,000.00 crore through a non-convertible debenture (NCD) issue, representing the country's largest retail bond offering in nearly eight years. The Maharatna PSU filed its tranche I prospectus dated January 9, 2026, for the public issue of secured, rated, listed, redeemable NCDs with a face value of ₹1,000.00 each.

Issue Structure and Timeline

The NCD issue features a base size of ₹500.00 crore with a greenshoe option of up to ₹4,500.00 crore, operating within the company's shelf limit of ₹10,000.00 crore. The tranche I issue will open on Friday, January 16, 2026, and close on Friday, January 30, 2026, with provisions for early closure or extension in compliance with SEBI regulations.

Investment Options and Coupon Rates

PFC will offer bonds across multiple maturity periods with differentiated coupon rates based on investor categories. The company has structured five distinct investment options to cater to various investor preferences.

Retail investors receive the highest coupon rates, with the 15-year tenor offering an annual coupon of 7.30%. The zero-coupon option provides a 10-year and 1-month maturity with competitive yields, while the direct payment option allows investors to receive returns at maturity for the 15-year paper.

Credit Ratings and Listing Details

The NCDs have received top-tier AAA ratings from three leading rating agencies, reflecting the strong credit profile of the Maharatna PSU. The debentures will be listed on the National Stock Exchange of India Limited, which serves as the designated stock exchange for the issue.

Credit Ratings:

• CARE Ratings Limited: "CARE AAA; Stable"
• Crisil Ratings Limited: "Crisil AAA/Stable"
• ICRA Limited: "[ICRA] AAA (Stable)"

Fund Utilization and Management

PFC has outlined a clear framework for deploying the raised capital, with the majority allocated toward core lending activities. At least 75% of the net proceeds from tranche I will be utilized for onward lending, financing or refinancing existing indebtedness, and debt servicing. The remaining 25% will support general corporate purposes.

The funds raised specifically from zero coupon NCDs will be exclusively used for onward lending activities. AK Capital Services, Tip Sons Consultancy Services, Nuvama Wealth Management, and Trust Investment Advisors serve as lead managers for the issue.

Stock Performance Context

PFC shares have shown mixed performance across different timeframes. The stock gained 8% over one month but declined 14% in the past six months. While the stock dropped 7% over two years, it delivered multibagger returns of 282% over the past five years. On Monday, PFC shares closed 3.47% higher at ₹371.50 on the BSE, reflecting positive market sentiment ahead of the NCD announcement.