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Higher yields with near-sovereign safety from state governments
State Development Loans (SDLs) are bonds issued by individual state governments of India to finance their fiscal deficits and development projects. Like central government securities, SDLs are auctioned by RBI and carry a state government guarantee.
SDLs typically offer yields 20-50 basis points higher than equivalent central government securities (G-Secs), making them attractive for investors seeking slightly higher returns while maintaining near-sovereign safety.
With over 28 states and union territories issuing SDLs, investors can choose based on state fiscal health, but importantly, no Indian state has ever defaulted on SDL payments in the history of independent India.
Largest borrowers with highest liquidity in secondary market.
Regular issuers with good market liquidity.
Less frequent issuers with lower secondary market liquidity.
SDLs typically offer 20-50 basis points more than equivalent G-Secs, providing better returns for similar safety.
Backed by state government guarantee. No state has ever defaulted on SDL payments in independent India's history.
Active secondary market on NDS-OM. Major state SDLs have sufficient liquidity for retail investors.
Regular coupon payments every six months provide steady income stream like G-Secs.
Buy SDLs through RBI Retail Direct with zero brokerage. Same platform as G-Secs.
Choose SDLs from different states to diversify state-specific risk while maintaining near-sovereign safety.
Open a free account at rbiretaildirect.org.in. SDLs are available alongside G-Secs in primary auctions and secondary market.
Buy SDLs on NSE or BSE through your existing demat and trading account.
Some gilt funds and debt funds include SDL allocation for diversification.
| Aspect | Details |
|---|---|
Tax Rate | As per income tax slab |
TDS | No TDS on SDLs |
Reporting | Report in ITR under 'Income from Other Sources' |
| Aspect | Details |
|---|---|
Holding Period for LTCG | > 12 months (Listed) |
LTCG Tax Rate | 12.5% (Budget 2024) |
STCG Tax Rate | As per income tax slab |
Indexation | Not available (from FY 2024-25) |
Like all fixed income, SDL prices fall when interest rates rise. 10-year tenures mean significant duration risk.
While no state has defaulted, some states have weaker fiscal health than others, reflected in spread variations.
SDLs have lower trading volumes than G-Secs. Smaller state SDLs can be difficult to sell quickly.
Common questions about State Development Loans
Tools and guides to help you make better investment decisions