When I write about fixed income, I try to start from the same place most investors start: “What am I actually funding when I invest in a bond?” With psu bonds, the answer is usually clear and meaningful. These are bonds issued by Public Sector Undertakings (PSUs)—government-owned enterprises that operate in areas most of us rely on every day: electricity, energy, rail infrastructure, housing finance, and large-scale development funding.

In simple terms, psu bonds are one way these enterprises raise money for long-term work—without depending only on banks or annual government budgets.

What exactly are PSU bonds?

A bond is a borrowing instrument. When a PSU issues a bond, it is essentially saying: “We need funds for a certain time period. If you lend us money, we will pay you interest and return your principal on maturity.”

That’s the core promise. The bond may pay interest periodically (like quarterly, semi-annual, or annual payouts), or it may be structured differently. Either way, as an investor, I am not buying “equity ownership”—I’m lending money under defined terms.

One important point I always keep in mind: government ownership can be reassuring, but it does not automatically mean the bond has a government guarantee. A bond is “guaranteed” only if it explicitly states so in its documentation. That distinction matters.

How PSU bonds support government enterprises

When PSUs need funds, their needs are usually linked to scale and time. Infrastructure doesn’t get built in three months. Transmission networks, clean energy projects, railway upgrades, or large lending programs often run for years. These projects need steady capital that matches their timeline.

This is where psu bonds fit naturally. Bonds allow PSUs to raise longer-term funds with predictable repayment schedules. For the enterprise, that means better planning and less pressure to rely on short-term borrowing.

At a wider level, the bond market becomes a channel where savings are put to work. Instead of money sitting idle, it can flow into institutions that are building or financing national priorities. That is the real economic role of these bonds: they help fund essential work at scale.

What I evaluate before I buy PSU bonds

If I’m planning to buy bonds, I don’t treat it as a one-line decision. I look at a few practical checks—because bonds are “simple” only on the surface.

• Credit rating (and outlook): It’s a starting signal for credit risk, not a guarantee.
  
  
• Coupon vs YTM: Coupon is the stated interest rate; YTM reflects the overall return if I hold till maturity, considering the price I pay today.
  
  
• Maturity: Longer maturities can react more to interest-rate changes, which affects market price.
  
  
• Liquidity: Some bonds are easier to sell than others in the secondary market.
  
  
• Terms and structure: Secured vs unsecured, any call options, and the fine print in disclosures.
  
  

These factors shape how “comfortable” the bond feels in a real portfolio—not just how attractive the number looks.

How to buy PSU bonds (and why the route matters)

Most investors can buy bonds either when they are freshly issued (primary market) or later when they trade (secondary market). Many also prefer holding them in demat form for easier tracking.

Before I buy bonds, I make sure I understand three things:

1. how long I plan to hold,
   
   
2. whether I might need liquidity, and
   
   
3. how the returns are expected to come—through periodic interest or through price/maturity value.
   
   

Risks worth respecting

Even high-quality issuers are not “no-risk.” Bond prices can move when interest rates change. The issuer’s financial position can also evolve over time. Tax treatment can differ based on how income and gains arise. For me, this is not about fear—it’s about clarity.

Closing thought

I see psu bonds as an important link between investor capital and the enterprises that support India’s economic backbone. They can bring structure and predictability to fixed income investing—provided I choose carefully, read the disclosures, and align each decision with my time horizon and risk comfort before I buy bonds.