FDs with corporates used to be the Common and famous products of yesteryears, the time when small savings was the only source of salvation for the household. However, the evolution of savings in the last twenty years has changed the way investors think of fund management. Mutual funds have dominated investors' thoughts to become a vast industry of over Rs. 30 lakh crore in the last two decades. However, fixed return products have not lost their shine as guaranteed coupon rate is everyone's favorite. It is advisable to lock your funds in a fixed coupon rate product when the yields are high and uncertain timings revolve around us. Many are looking to shift from riskier assets to more safe instruments. And debt products with a fixed coupon rate at higher yields are the right option. We are bringing you some options which should be considered to capitalize on the high yield regime which has begun now.
Fixed Deposits with HFC and NBFC; For decades, the product has been a standard instrument for families to save funds. Investors used to either take exposure in direct equity or allocate funds in FDs to diversify in Debt. However, the FDs as a product is now more regulated than in the past, making it relatively safer. The difference in the rates between banks and corporates has risen compared to a year ago. Thus, it is prudent for investors to lock themselves with a higher coupon rate, as it enhances the yield to maturity. NBFC and Housing finance companies have FD schemes where the rating is mandatory, enabling one to understand the company's safety. The liquidity is available either through premature payment with a deduction of 1 or 2% on the fixed coupon rate or by availing of a loan against the FD up to 80-90% of the FD amount. Kindly refer to our list of FD rates CLICK TO VIEW.
Bonds and Debentures of PSUs and Corporates; The instruments are available in primary and secondary markets, but one can get better deals and options in secondary markets. The product is traded in the market and directly relates to the yields in the market. One would require paying a premium if the coupon rate is higher than the going yield. On the contrary, a paper is sold at a discount on the price available if the carrying coupon rate is lower than the yield. The instruments are in the form of NCDs by the private sector and Bonds by PSUs or Banks. All the products are mandated to get a rating from Credit agencies. The spike in the yields has made it attractive and as they are traded in the secondary market, it usually has liquidity. The papers can be held in a Demat account, making handling the interest payment and maturity easier.
Tax-free bonds; The instrument is available in the Secondary market as the primary issues were floated by the various PSUs a decade ago. The instrument had maturity from 10 to 20 years. The maturity, which is beyond 10 years, is available in the secondary market. The yields have risen to around 4.75%, which is attractive for being tax-free.
RBI Bonds and Sovereign Gold Bonds; These are suitable instruments for conservative investors, considered safe havens to combat uncertainties. RBI bonds are floating interest rate bonds that fetch 35 basis points higher than NSC rates. NSC rates higher than 35 basis points. In a scenario where the yield is going up, any upward revision in post office schemes would increase the rates of RBI Bonds. Sovereign Gold bonds are another instrument that gives you exposure to buying Gold in paper or electronic form and currently pay interest at 2.5% pa. Both products can be subscribed to through the primary market however, they have limited liquidity.
Consider these products based on your requirement and taxation slabs. Higher tax slabs should consider tax-free bonds, whereas lower tax bracket investors can opt for taxable instruments like RBI bonds, FDs and NCDs. However, it also depends on the investor's risk appetite as FDs are unsecured and riskier than NCDs, which are backed by the company's assets. It is advisable to seek advice from a consultant who can examine your need to suggest the right product.