Which Types of Bonds Can Be Pledged for a Loan?

Loan applicants can pledge several types of bonds as collateral. This can allow them to unlock liquidity without selling their bonds. The exact nature of acceptable bonds and eligibility usually varies across loan providers. Let us explore the commonly accepted types of bonds:

• Government Bonds: Government bonds include Treasury Bills (T-Bills), long-term government securities, and Sovereign Gold bonds. Known for their safety and high creditworthiness, these bonds are accepted by most loan providers.
• Corporate Bonds: Corporate bonds are issued by private or public companies. Their acceptability often depends on their credit rating. Most loan providers extend loans for high-rated bonds (e.g., corporate bonds with AA or AAA ratings).
• Tax-Free Bonds: These bonds are issued by government-backed entities. Tax-free bonds are known for offering stable returns. Most loan providers accept tax-free bonds as collateral.
• Infrastructure Bonds: These bonds are issued to fund infrastructure projects. They can also be kept as collateral if they meet the loan provider’s risk assessment criteria.
• Perpetual Bonds: Some loan providers also accept perpetual bonds as collateral. Due to their indefinite maturity, these bonds often come with specific conditions.

Before pledging their bond, loan applicants should ensure that the bond is not locked under any restrictive clauses and verify the Loan-to-Value (LTV) ratio offered by the loan provider. This approach can ensure one gets an optimal value for their bond.