We are witnessing a high rate regime with the RBI raising interest rates regularly to control inflation. We experienced low rates for quite a long time, and many who are dependent on the interest income from their investments were not able to make the means to manage their monthly expenses. Moreover, those having home loans, personal loans, car loans, etc, are now feeling the pinch of higher rates. Raising around 90 basis points in 45 days and another 50 basis points expected would bring interest rates to a decent level to divert some funds into debt products. The increased rate has allowed the investors to deploy their incremental funds in instruments carrying attractive rates. Everyone needs to re-adjust their portfolio with the high rates that have emerged in the economy to beat the high inflation. We are running through all the debt options available to re-align your portfolio;
Corporate FDs
The most comfortable product that has been in the Investors for decades and with the evolution through the regulators, the product has become a safer bet. The rates are attractive for short to long-term tenures. The short tenure is suitable for those who feel rates would go further high or have some requirements in a shorter duration. And the long-term has the benefit of higher yields to maturity due to compounding on the higher coupon rate. It suits all those who fall in lower tax slabs as the interest is taxable.
Bonds and Debentures
Bonds and Debentures: The securities are primarily available through the secondary market and are tradable in the markets. The liquidity, at times, can be challenging, but one can buy a range of securities from AAA to BBB-rated NCDs of yields depending on the rating of the paper. The market works on the universal principle of the Debt products- The higher the rating lowers the yields, and vice versa. The papers have different maturities therefore, one can purchase securities based on their need for funds and risk appetite.
Fixed Maturity Plans (FMPs)
The Debt Mutual Funds category is a closed-ended scheme where the fund buys securities held to maturity. The yields and credit rating of debt papers to be held in the scheme are indicated before the opening of the public subscription, which is for a limited period. The attraction of the scheme is the coupon rate indicated when received along with the principal on maturity is considered a capital gain. The capital gain tax on profits is paid after considering the indexation cost, which is nominal. The scheme is highly suitable for investors who fall in the highest tax slab and have a 3+year time horizon to benefit from long-term capital gain.
Tax-free Bonds
The darling product of HNIs and Super HNIs who had subscribed to the schemes offered by various PSUs in 2010-2013. The interest is entirely tax-free and is available in the secondary market. The yield has improved drastically and is attractive enough to be comparable to any taxable instrument. The interest is payable on a half-yearly basis and has medium to long end maturities.
We have listed above a few debt papers, which are available for all sections of investors- young to senior citizens, low taxable slabs, individuals to HNIs to Super HNIs with all spectrum of maturities. However, investors must understand their needs and risk appetite to choose the right product. The investors have been avoiding the allocation of funds in Debt for a long time as Equity markets have been performing well. With the markets getting volatile and the investment principle of diversification among the assets should be returned in the equity-dominated portfolios.