Government of Karnataka Bonds: Yield, Structure, Tenure & Key Risks

Introduction

State government bonds form an important part of India’s fixed-income market, enabling state governments to raise funds for infrastructure, development, and fiscal management. Among these, Government of Karnataka bonds are issued by one of India’s economically significant states and are actively tracked in the domestic bond market.

Searches for government of karnataka bonds typically reflect interest in understanding how these bonds work, how yields are calculated, and how they compare with other government or corporate debt instruments.

This article provides a purely educational explanation of Government of Karnataka bonds, covering their structure, yield to maturity (YTM), pricing, and key risks, without offering investment advice.

What Are Government of Karnataka Bonds

Government of Karnataka bonds are state government debt securities issued to raise funds for budgetary requirements and long-term development initiatives. These bonds are generally issued as part of State Development Loans (SDLs).

By purchasing these bonds, investors lend money to the state government in exchange for:

• Periodic interest payments

• Repayment of principal at maturity

These bonds are issued through public issuance and are typically listed, allowing for secondary market trading.

Key Features of Government of Karnataka Bonds

The key features of the Government of Karnataka Dec’26 bond include:

• Issuer: Government of Karnataka

• Bond Name: Government of Karnataka Dec’26

• ISIN: IN1920160067

• Nature: Listed

• Bond Type: Senior secured, quasi-sovereign

• Mode of Issue: Public issuance

• Date of Issue: 28 December 2016

• Date of Maturity: 28 December 2026

• Tenure Remaining: Approximately 11 months

• Face Value: ₹100 per bond

• Coupon Rate: 7.27 percent (fixed)

• Interest Payout Frequency: Half-yearly

• Yield to Maturity (YTM): 5.80 percent

• Current Yield: 7.17 percent

• Clean Price: ₹101.37

• Dirty Price: ₹101.97

• Minimum Investment Amount: ₹102

• Credit Classification: Quasi-sovereign

These parameters define the bond’s financial and contractual characteristics.

Bond Structure and Quasi-Sovereign Nature

Government of Karnataka bonds are classified as quasi-sovereign instruments. This classification indicates:

• The issuer is a state government

• The bonds are backed by the fiscal authority of the state

• They are not explicitly guaranteed by the central government

The bonds carry senior status, implying priority over other unsecured obligations of the issuer. While the quasi-sovereign nature generally indicates lower credit risk than corporate bonds, it does not remove market-related risks.

Yield to Maturity (YTM) and Coupon Rate Explained

Coupon Rate

The coupon rate of the Government of Karnataka Dec’26 bond is 7.27 percent, calculated on the face value of ₹100. Interest is paid half-yearly, resulting in two scheduled interest payments each year until maturity.

Yield to Maturity (YTM)

The yield to maturity (YTM) of 5.80 percent represents the annualised return implied if the bond is held until maturity, assuming:

• All interest payments are received as scheduled

• The bond is purchased at the prevailing market price

• Principal is repaid in full at maturity

YTM differs from the coupon rate because it factors in the purchase price, remaining tenure, and timing of cash flows. It is a calculated metric and not a guaranteed outcome.

Bond Price, Face Value, and ISIN

Face Value

The face value of the bond is ₹100, which:

• Forms the base for interest calculation

• Represents the principal repaid at maturity

Bond Price

• Clean Price: ₹101.37

• Dirty Price: ₹101.97

The difference between clean and dirty price represents accrued interest since the last coupon payment date.

ISIN

The bond is identified by ISIN IN1920160067, which enables:

• Clear identification of the bond series

• Tracking of disclosures and trading activity

• Settlement through recognised depository systems

Issuer Overview: Government of Karnataka

The Government of Karnataka is one of India’s major state governments, with a diversified economic base spanning manufacturing, services, agriculture, and technology. Like other state governments, it raises funds through taxes, grants, and borrowings such as state government bonds.

Bond issuances help the state:

• Finance development and infrastructure projects

• Manage fiscal deficits

• Refinance existing debt

The state’s capacity to service debt obligations is linked to revenue generation, fiscal discipline, and overall economic performance.

Interest Payout and Maturity Profile

Interest Payout

• Interest is paid half-yearly

• Payments are based on the fixed coupon rate

• Cash flow dates are defined in advance

Maturity

• The bond matures on 28 December 2026

• Principal repayment is scheduled at maturity

Given the relatively short remaining tenure, the bond’s sensitivity to long-term interest-rate changes is lower compared to long-dated government securities.

Liquidity and Secondary Market Trading

Government of Karnataka bonds are listed, which allows trading in the secondary market. However:

• Liquidity may vary across different state government bond series

• Trading volumes may be lower than benchmark central government bonds

• Prices can fluctuate based on interest-rate movements and market demand

Listing improves transparency but does not guarantee immediate exit.

Risks Associated with Government of Karnataka Bonds

Despite their quasi-sovereign status, these bonds carry certain risks:

• Interest Rate Risk: Prices may fall if market interest rates rise

• Liquidity Risk: Limited trading volumes may affect exit timing

• Inflation Risk: Fixed interest payments may lose real value over time

• Fiscal Risk: State-level fiscal pressures may influence market perception

These risks primarily affect market value rather than contractual payments if the bond is held to maturity.

Government of Karnataka Bonds vs Other Government Bonds

Compared to central government bonds, state government bonds:

• Often offer slightly higher yields

• Carry marginally higher credit risk

• May have lower liquidity

• Compared to corporate bonds, they:

• Generally carry lower credit risk

• Offer more predictable cash flows

May provide lower yields than high-risk corporate instruments

Common Misconceptions About State Government Bonds

Common misconceptions include:

• State government bonds are completely risk-free

• Coupon rate equals actual return

• All government bonds trade actively

• Short-tenure bonds are unaffected by market movements

Understanding bond mechanics helps clarify these assumptions.

Conclusion

Government of Karnataka bonds are quasi-sovereign, fixed-income instruments offering defined interest payments and maturity dates. Their structure, yield to maturity, and state-level backing make them a distinct category within India’s bond market.

Understanding how YTM, coupon rates, pricing, and interest-rate sensitivity work provides clarity on how these bonds function, particularly for short-to-medium-term investment horizons. Like all bonds, they remain subject to market and macroeconomic factors.

Disclaimer

This blog is intended solely for educational and informational purposes. The bonds and securities mentioned herein are illustrative examples and should not be construed as investment advice or personal recommendations. BondScanner does not provide personalized investment advice through this content.

Readers are advised to independently evaluate investment options and seek professional guidance before making financial decisions. Investments in bonds and other securities are subject to market risks, including the possible loss of principal. Please read all offer documents and risk disclosures carefully before investing.