Retail investors in India are starting to favour state‑backed bonds after the RBI’s Retail Direct platform attracted a surge of new users. The move comes as the platform’s registrations grew from about 71,000 in October 2022 to 6.43 lakh by June 2026.
In the same period, investments in central government dated securities rose to Rs 809 crore, while state development loans (SDLs) attracted Rs 567 crore. The numbers show a clear shift toward government‑issued paper.
Retail investors now have two main choices. SDLs are issued directly by state governments and serviced through the RBI. State‑guaranteed bonds are issued by state‑owned entities with an explicit repayment guarantee from the state government.
SDLs currently offer yields between 7.40 % and 7.52 % for maturities up to 18 years. State‑guaranteed bonds yield between 8.60 % and 9.15 %, giving investors a higher return while still enjoying state‑level security.
Vishal Goenka, co‑founder of IndiaBonds, said the momentum is strongest in the guaranteed category. He added that the appeal lies in near‑sovereign safety, yields well above fixed deposits, and seamless digital access through an app.
Digital platforms have made it easier for individuals to buy government securities directly. This accessibility, combined with attractive yields, is driving the shift from traditional fixed deposits and mutual funds.
Saurav Ghosh, co‑founder of Jiraaf, noted that retail participation in SDLs has increased, though exact figures are hard to pin down. He highlighted that SDLs offer a modest yield premium over central government securities, which attracts investors looking for state government‑backed fixed‑income exposure.
When compared with corporate bonds, state‑government bonds sit in the middle of the yield spectrum. AAA‑rated corporates trade at a modest premium to state securities, AA‑rated paper offers 8.5 % to 10.5 %, and A‑rated paper 10.5 % to 11.5 %. State‑guaranteed bonds, with yields of 8.60 % to 9.15 %, approach AA corporate levels while providing an explicit state guarantee.
Credit risk for state bonds is very low because the RBI administers interest and principal payments. However, market risk remains: prices move inversely to interest rates, so long‑tenure paper can experience mark‑to‑market swings if sold early. Liquidity for state paper is improving but still thinner than for central government securities.
Ghosh cautions that SDLs do not carry an explicit guarantee from the Government of India. They are direct obligations of the issuing state governments and are classified as sub‑sovereign securities. State‑guaranteed bonds, on the other hand, are issued by state‑owned entities with a credit‑enhancement suffix recognised by rating agencies.
For investors seeking an alternative to fixed deposits that offers higher yields without the credit risk of lower‑rated corporates, state‑backed bonds are increasingly attractive. As always, higher returns come with trade‑offs that need to be understood before investing.