Monthly income bonds in India

How interest payout frequency works

A bond pays interest, the coupon, on its face value at a fixed frequency set in its offer document. NCD public issues usually offer several series of the same bond that differ only in tenure and in how interest is paid: monthly, quarterly, annually, or cumulatively, where nothing is paid until maturity and the interest is added to the redemption amount. You pick the series when you apply; you cannot switch later.

Three terms in the offer document decide what lands in your bank account. The day-count convention sets how a period's interest is worked out; Muthoot Fincorp's Tranche V prospectus uses actual/actual, so a 31-day month pays slightly more than a 30-day month. The payment date says when interest is paid and what happens if that day is a holiday. The record date decides who is paid: in the same prospectus it is 15 days before each interest date, and a buyer who holds the NCD on the record date receives that payment.

Where monthly-paying bonds come from

Monthly series are standard in retail NCD public issues. Of the 28 public NCD issues filed with SEBI between December 2025 and September 2026 on our NCD issue tracker, 26 offered a monthly series. The two that did not were Power Finance Corporation's Tranche I issue, which offered annual and cumulative series, and Adani Enterprises' issue, which offered quarterly, annual and cumulative series. The issuers offering monthly series were finance and financial-services companies such as Muthoot Fincorp, Kosamattam Finance, IIFL Finance and Edelweiss Financial Services.

Bonds bought later on the exchange or through an online bond platform keep the frequency set when they were issued. If you want a monthly payer in the secondary market, check the bond's interest frequency and next interest date in its offer document or information memorandum, not just the yield shown on the screen. The corporate bonds guide explains how listed bonds are bought and sold.

A monthly payout says nothing about how safe the bond is. Monthly series are offered mostly by lending companies whose NCDs carry a range of ratings, and some are secured only by a charge that ranks behind existing lenders. Read the credit rating and the security section of the prospectus first; the credit rating guide explains the scale.

The monthly series pays a lower coupon

In a multi-series issue the monthly series usually carries a lower coupon than the annual series of the same tenure. The Muthoot Fincorp Tranche V prospectus shows why. Its 36-month monthly series (Series II) pays 8.75% a year and its 36-month annual series (Series VI) pays 9.10%, yet the prospectus states almost the same effective yield for both: 9.10% for Series II and 9.09% for Series VI. Paying 8.75% in twelve monthly instalments, with each instalment compounded, works out to about 9.10% a year, the same as one payment of 9.10% at the end of the year.

The effective yield is an annualised figure that assumes each payment can be put back to work at the same rate. If you spend the monthly interest, as most people buying a monthly series intend to, you earn the coupon of 8.75% on your money, not 9.10%. Over the 36 months, ₹1 lakh in Series II pays about ₹26,250 in interest (8.75% a year for three years before day-count effects), Series VI pays ₹27,300 (₹9,100 a year), and the cumulative Series X returns ₹1,29,891 at maturity, the redemption amount the prospectus states for ₹1 lakh of face value. The gap is the cost of receiving the money earlier, not a fee.

Tax on monthly interest

Monthly interest is taxed the same way as interest paid at any other frequency. Under the Income-tax Act, 2025, which applies from 1 April 2026, interest on debentures is 'interest on securities', taxed under 'Income from other sources' at your slab rate. The issuer deducts TDS at 10% once the interest paid or credited to you in the tax year crosses ₹10,000. A resident whose tax for the year will be nil can give the payer a nil-tax declaration (the old Forms 15G and 15H) to stop the deduction; if you are under 60, the year's interest plus the other payments section 393(6) covers must also stay within the basic exemption limit.

Choosing a monthly series does not change the threshold test, which is applied to the year's total interest, and TDS is a credit against your final tax, not an extra tax. How bonds are taxed in India gives the section numbers and the rules for gains when you sell.

This guide does not cover how interest from the Post Office Monthly Income Scheme, the Senior Citizens' Savings Scheme or bank deposits is taxed; check the scheme or bank before comparing after-tax income. A mutual fund withdrawal plan is taxed differently, because each withdrawal is a sale of units: only the gain in the units you redeem is taxed, as a capital gain. Gains on units of a debt fund that counts as a Specified Mutual Fund, bought on or after 1 April 2023, are treated as short-term and taxed at your slab rate whatever the holding period.

Monthly-interest NCDs compared with POMIS, SCSS, SWP and FDs

The Post Office Monthly Income Scheme (POMIS) is a Government of India small savings scheme. It runs for five years, takes one deposit of ₹1,000 or more in multiples of ₹1,000, up to ₹9 lakh in a single account and ₹15 lakh in a joint account, and pays interest on completion of each month from the date of deposit. Unclaimed monthly interest earns nothing extra. The account can be closed after one year with 2% of the deposit deducted, or 1% after three years. Its rate for October to December 2026 is 7.4%, unchanged since April 2023.

The Senior Citizens' Savings Scheme (SCSS) pays quarterly, not monthly: interest is paid on the first working day of April, July, October and January. It is open to people aged 60 or more, and to some retirees from age 55 (50 for retired defence personnel), with a maximum deposit of ₹30 lakh, a five-year term and an optional three-year extension. Its rate for October to December 2026 is 8.2%.

A systematic withdrawal plan (SWP) from a mutual fund pays a fixed amount you choose at regular intervals by redeeming units. It is not interest: the value of the units left behind rises and falls with the fund, so a withdrawal set above what the fund earns eats into your capital. Exit loads may apply to withdrawals in the first year, depending on the scheme.

A bank fixed deposit pays interest quarterly or at maturity by default. SBI, for example, pays monthly on request for deposits of twelve months and above, and its terms say monthly interest is paid at a discounted rate, which is the same effect as the lower coupon on an NCD monthly series. Rates differ by bank, tenure and age.

How to check a bond's payout schedule before you buy

Everything you need is in the offer document. For an NCD public issue it is the prospectus filed with SEBI, which our NCD tracker links for each issue.

• Find the 'Frequency of Interest Payment' row in the issue structure table and note which series numbers are monthly.
• Check the interest payment date. Muthoot Fincorp's monthly series pays on the first of each month on face value, and the last payment is made with the redemption.
• Check the first payment. In the same issue, interest from allotment to the end of the following month is clubbed into the first payment, so it is larger and comes later than the regular ones.
• Read the holiday rule in the illustrative cash flows. In the Muthoot example, interest due on a Sunday is paid the next working day, while a maturity falling on a Sunday is paid the working day before.
• Note the record date (15 days before each payment in this issue) if you plan to buy or sell on the exchange: whoever holds the NCD on that date gets the payment.
• Check which series is allotted if an application does not choose one. In Muthoot Fincorp Tranche V it was Series VI, an annual series, not a monthly one.
• Compare the coupon of the monthly series with the annual series of the same tenure, so you know what the monthly option costs if you spend the interest.