State Development Loans (SDLs)
SDLs are government bonds issued by individual states in India to raise money for development projects like roads, health, or education. Like central government bonds (G-Secs), SDLs are low-risk, fixed-return instruments — but with slightly higher yields in some cases.
Announcement
RBI announces SDLs with details like tenure, interest rate, and auction date.
Place Your Bid
You place your order at the cut-off price during the bidding window.
Auction & Allotment
After the auction, units are allotted based on final price; any extra amount is refunded and allotted bonds are automatically credited to your demat account.
You place your order at the cut-off price during the bidding window.
After the auction, units are allotted based on final price; any extra amount is refunded and allotted bonds are automatically credited to your demat account.
You receive fixed interest payouts every 6 months directly in your bank account.
At the end of the tenure, your principal is returned at face value.
Let's Learn How Do SDLs Work with an Example.
Step 1. An SDL is Announced:
The RBI announces a State Development Loan – Karnataka SDL 2027 (tenure of 3 years) with a coupon rate of 7% and a cut-off price of ₹102.
Step 2. You Place an Order:
You choose to invest — e.g., 100 units at cut-off price
- ₹10,200 (₹102 x 100) is blocked.
- This is the maximum you’ll pay; the actual price could be lower.
Step 3. Auction & Allotment:
What Happens After You Bid?
- Once bidding ends, a final price is decided (e.g., ₹101).
- You’re allotted 100 units at this final price.
- Since you had paid ₹10,200 in advance and only ₹10,100 is needed, ₹100 is refunded to your bank account.
- The allotted units are credited to your demat account automatically.
Step 4. What happens after allotment:
You Start Receiving Interest.
SDLs pay fixed interest twice a year. You earn on the face value (usually ₹100), not on your purchase price.
- Coupon Rate: 7% annually → 3.5% semi-annually
- Face Value : ₹100
- Tenure: 3 years (6 interest payouts)
| Period | Interest Rate (Semi-Annually) | Interest Earned |
|---|---|---|
0 – 6 Months | 3.50% | ₹350 |
6 – 12 Months | 3.50% | ₹350 |
1 – 1.5 Years | 3.50% | ₹350 |
1.5 – 2 Years | 3.50% | ₹350 |
2 – 2.5 Years | 3.50% | ₹350 |
2.5 – 3 Years | 3.50% | ₹350 |
Total Interest earning ₹2,100
The interest is credited to your bank account automatically every 6 months.
Step 5: What Happens at Maturity? (End of Year 3):
a. Principal Repaid:
You receive ₹10,000 (₹100 × 100 units), as bonds are redeemed at face value, not at your purchase price of ₹101.
b. Final Interest Credit:
The last ₹350 interest (if not already paid) is deposited into your bank account.
c. Your Total Returns:
- Total Invested: ₹10,100
- Interest Earned: ₹2,100
- Principal Returned: ₹10,000
- Net Earnings: ₹2,000
You don’t need to hold SDLs until maturity.
- Sell anytime on the exchange via your demat account
- Sale value will depend on market demand and prevailing interest rates
- You may receive more (premium) or less (discount) than what you paid
Tip: While early exit is allowed, SDLs prices can fluctuate, and liquidity may vary—so plan your holding period accordingly
While browsing SDL offers, you’ll come across certain terms—like coupon rate, face value, or cut-off price. Don’t worry if they sound technical. Here’s a quick breakdown of the key terms to help you understand what you’re investing in, without the jargon.
| Term | Definition |
|---|---|
Issued by | SDLs are issued by RBI on behalf of the State Government |
Maturity Date | The date your investment is repaid at face value, along with final interest. |
Face Value | The base value of the bond – typically ₹100 per unit. |
Cut-off Price | The final price per unit decided in auction. You might pay less than your max. |
Min. Investment | Minimum of 100 units, total depends on cut-off price (e.g., ₹102 × 100). |
Interest Paid | Interest is paid every 6 months (bi-annually) directly to your bank. |
Return p.a. | Fixed annual interest on face value (e.g., 7% per ₹100). |
Indicative Yield | Expected return based on previous auctions; actual may differ. |
Frequently Asked Questions
What’s the minimum investment in SDLs
You need to invest in at least 100 units. The final amount depends on the cut-off price (e.g., ₹102 × 100 = ₹10,200).
Can I pledge SDLs as collateral?
No, currently SDLs held in your demat account cannot be pledged to avail trading margins. Click here for more details
Can I sell SDLs before maturity?
Yes, SDLs are tradable on exchanges. You can exit anytime, but the sale price depends on market demand and prevailing interest rates
Is TDS applicable on SDL interest earnings?
No TDS is deducted. However, the interest earned is taxable as per your income slab and must be declared in your tax return
Where can I view available SDL offers?
You can view and invest in live SDL auctions directly through the Kotak Neo app under the “Invest/ Government Bonds” section. Click here to view SDL listings