Moneylife Events
Options for debt investment: Moneylife Foundation Fixed Income

Moneylife Foundation held an exclusive, in-depth session which delved into different options for fixed income investments. Each investment option was discussed in detail for its advantages and disadvantages

Moneylife Foundation hosted its 184th seminar with the event titled “High Returns, Safe Capital” conducted by Debashis Basu, editor, Moneylife and Raj Pradhan, columnist at Moneylife, who writes on insurance and fixed income products . Mr Basu explained the different types of fixed income products available and the returns one can expect. He also explained how much should allocate to different kinds of fixed-income products such as bank fixed deposits (FDs), corporate bonds and corporate FDs. Mr Pradhan gave insights to the audience on different investment options to benefit from high rates regime.
 

Mr Basu explained how over different age groups from 21 to 60 years, one can invest in a mix of equity and fixed income products. Stocks and equity funds over the long run of 5-10 years have more often than not beaten inflation. Other products like bank FDs and other fixed income products may not deliver high returns but offer safety of capital.
 

For those who have retired, Mr Basu advised the audience to create a two-part portfolio.
One, containing 60% of the total corpus to be invested in fixed income securities such as bank and corporate fixed deposits and bonds to garner safety for the portfolio. And the second, containing 40% of the total corpus should be invested in safe equity mutual funds, which would work towards beating inflation.  He illustrated this plan with an example, where he took an initial corpus of Rs1 crore and depicted its growth through graphs and charts, over a 20-year period.
 

For the fixed income part, one can choose from FD of banks, corporate bonds/non-convertible debentures, tax-free bonds, fixed maturity plans (FMP) of mutual funds and G-Secs. The different investment options needs to be evaluated for parameters such as safety, ease of investment, returns, liquidity, interest payment options and suitability based on your tax bracket. Each investment option was discussed in detail for its advantages and disadvantages. You can’t get best of everything in one instrument and hence there are good reasons to understand all the options and allocate your money in different options based on your risk appetite.
 

Bank FD from scheduled commercial banks is safe and the most popular option for Indians. The main disadvantage of it is that the returns are taxable as per your tax slab. It is better to avoid corporate FD. Bonds/NCD is better option than corporate FD. Credit rating is mandatory for NCD, but not for corporate FD. NCDs are more liquid because they can be traded in the secondary market in demat form once they are listed in the stock exchange. However, corporate FDs cannot be liquidated as easily. Secured NCDs are protected against the company’s assets while corporate fixed deposits are unsecured.
 

For those in 20% and especially 30% tax bracket an excellent option is tax-free bonds from Government companies. You have option for long-term investment as the bond terms are 10, 15 and 20 years. It helps with mitigation of reinvestment risks. Getting a near 9% pa tax free returns without reinvestment risk for 20 years from AAA rated government company should definitely be scooped by savers for their debt instrument portfolio.
 

FMP has a great tax advantage, but you need to choose carefully. Choose FMPs with high-rated securities investment. Make sure you don’t need the money in the interim. Assume that your investment will be illiquid till the FMP matures. G-secs are rarely explored as an investment option by retail investors, due to numerous reasons. The current scenario of the bond market, however, offers a unique opportunity to savers to add G-secs to their portfolio. The good news is that you have the option to buy G-secs and get it added to your regular demat account, which holds other asset classes like equities/bonds. So, you don’t have to buy gilt funds offered by fund houses, in case you want to directly invest in G-sec.
 

To become a member of Moneylife Foundation and avail benefits at no cost, click here.
 

If you found this article useful, why not sign up here to receive daily updates from Moneylife straight into your Inbox

User

COMMENTS

K Sunil Kumar

3 years ago

can i buy G sec from ICICI direct trading account

Nilesh KAMERKAR

3 years ago

FMPs are sold as an alternative to bank fixed deposits. However, it would be a mistake to presume that FMPs are foolproof. The risk involved is small / insignificant, but should not be confused with zero risk.

The real test of FMPs being a safe investment would be, when the maturity of FMP coincides with a severe credit crisis or a credit crunch. However small this probability may appear, but if it were to happen, can have a deep impact.





Weekly Market Report: Nifty, Sensex in no man’s land

A close below 5,750 may signify a sharp decline

The holiday shortened week ended in the positive. This week saw the US government facing partial shutdown and the news making rounds that this may lead to possible postponement of the cut back of the stimulus.

 

The BSE 30-share Sensex rose 189 points (or 0.96%) to close the week at 19,915.95, while the Nifty settled at 5,907.30, up 74 points (or 1.27%).

 

On Monday, the market opened weak and ended in the negative for the second consecutive session, ahead of the worries of a possibility of the US government being headed for a shutdown. The US Congress failed to agree on a new budget. Market awaited the data of current account deficit (CAD) on Monday  anticipating it to widen to as high as 5.4% during the June quarter.

 

The Reserve Bank of India (RBI) plans to infuse Rs10,000 crore into the system through open-market operations next week to ease liquidity constraints brought some relief on the bourses and the Sensex closed in the positive on Tuesday.

 

Wednesday markets were closed. On Thursday, the market opened with full optimism and edged higher gradually. It ended in the green for the second consecutive session. The possible postponement of the cut back on the stimulus helped the Sensex continue in the positive. Fitch Ratings has warned India that any slippage on its policy front would have negative implications for its ratings, currently at the lowest investment grade. It also cautioned India that there is much capital still left which could outflow from the country.

 

On Friday, the Sensex continued with the third day of upmove. Activity at Indian services companies shrank at the fastest pace in more than four years last month. The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, slipped from 47.6 in August to 44.6 in September, its weakest since April 2009.

 

Jobless claims rose to 308,000 in the week ended September 28, from a revised 307,000, the Labor Department said. US payrolls data won't be released as scheduled today because of the shutdown. The department said that an alternative date for the September payrolls report and jobless rate hasn't been scheduled.

 

 

Back home, among the other indices on the NSE, the top two gainers were Realty (4%) and Bank (3%) while the bottom two losers were FMCG (2%) and PSE (1%).

 

Among the Nifty-50 stocks, the top five gainers for the week were Ranbaxy Laboratories (8%); Bajaj Auto (6%); Axis Bank (6%), DLF (6%) and IndusInd Bank (5%); while the bottom five losers were NTPC (4%); Oil & Natural Gas Corp (4%); ITC (2%); Hindustan Unilever (2%) and NMDC (2%).

 

Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors were:

 

Top ML sector

 

Worst ML sector

 

Textiles

9%

Energy

-4%

Real Estate

8%

Oil & Gas

-3%

Consumer Durables

5%

Consumer Products

-2%

Lifestyle & Leisure

4%

Steel

-2%

Cement

4%

Hotels

-1%

 

User

Sensex, Nifty indecisive: Friday closing report

A close above 5,935 is required for the upmove to regain momentum

The Indian stock market witnessed a highly volatile session on Friday. While Sensex closed in the positive for the third consecutive session, the Nifty closed marginally in the negative, breaking the two days of positive upmove. The market opened in the negative and both the indices hit the day’s low in the morning session itself. From this level the indices edged higher but fell once the services PMI data was released. From there, it rallied again and hit the intraday high in the last hour of the session. But from there, again, it fell steeply resulting in a close almost at the same level as yesterday.

 

The BSE 30-share Sensex opened lower at 19,870 and moved upto 20,052 from the low of 19,833 and closed at 19,916 (up 14 points or 0.07%). Nifty opened in the negative at 5,891 and moved in the range of 5,885 and 5,950 before closing at 5,907 (down 2 points or 0.04%). The National Stock Exchange (NSE) recorded a lower volume of 59.14 crore shares.

 

Among the other indices on the NSE, the top five gainers were Realty (1.62%); Auto (0.91%); Metal (0.70%); Smallcap (0.68%) and Nifty Junior (0.41%). The top five losers were PSU Bank (0.56%); Infra (0.46%); Service (0.28%); Finance (0.27%) and Bank Nifty (0.25%).

 

Of the 50 stocks on the NSE Nifty, 19 ended in the green. The top five gainers were Hindalco (2.47%); Coal India (2.30%); Lupin (2.18%); BPCL (2.00%) and Tata Motors (1.46%). While the losers were Dr Reddy (2.47%); Power Grid (2.00%); Jindal Steel (1.89%); IDFC (1.32%) and LT (1.29%).

 

Activity at Indian services companies shrank at the fastest pace in more than four years last month, a survey showed today. The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, slipped from 47.6 in August to 44.6 in September, its weakest since April 2009. That marked its straight third reading below 50, the threshold between growth and contraction. It showed firms were less optimistic about the future and were cutting staff as new business dries up. Services sector accounts for nearly 60% of India's economy. The PMI's new business index fell to 45 in September from 46.6 in August, the weakest reading since February 2009 and the third month running that demand has declined.

 

The Planning Commission said it certainly revisits the growth prospects. The target of 8% for the 12th Plan (2012-17) remains valid but it will take longer to get there because (the growth in) first two years have been disappointingly low. The economy is likely to expand by over 5% this fiscal.

 

US indices closed in the negative. Failure to raise the debt limit has "the potential to be catastrophic," the US Treasury Department warned in a report on Thursday, 3 October 2013, that said credit markets could freeze and the value of the dollar could plummet. Atlanta Fed President Dennis Lockhart said on Thursday that the shortage of "data would tend to make me somewhat more cautious" about reducing the pace of bond purchases. If the shutdown lingers until the next Fed policy-setting meeting on Oct. 29-30, it would be very hard to make a decision, he said.

 

Jobless claims rose to 308,000 in the week ended Sept. 28, from a revised 307,000, the Labor Department said. US payrolls data won't be released as scheduled today because of the shutdown. The department said that an alternative date for the September payrolls report and jobless rate hasn't been scheduled.

 

Except for KLSE Composite (up 0.29%) and Taiwan Weighted (up 0.07%) all the other Asian indices ended in the negative. Nikkei 225 was the top loser which fell 0.94%. China remained closed today.

 

The Bank of Japan kept its monetary policy unchanged on Friday following its meeting, and said in an accompanying statement that the economy is recovering moderately. In terms of the inflation outlook, the central bank noted that consumer prices, excluding fresh food, are in the range of 0.5% to 1%, and that inflation expectations appear to be rising on the whole. The Bank of Japan has set a 2% inflation target, which it aims to reach by 2015.

 

European indices were trading in the green and the US Futures were trading in the positive.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)