You can expect to get yield of nearly 10% for AAA rated bonds maturing in the next two years. Bonds with lower than AAA rating will give approximately 10.5% yield to maturity (YTM). The bond yields may dive if inflation rates decline leading to a possible cut in repo rate by RBI by March 2014. Nomura is expecting 50bps hike in the repo rate in 2014.
Employees’ Provident Fund Organisation has decided to increase the interest rate on provident fund to 8.75% for the financial year ending 31 March 2014. In the previous financial year, the interest rate paid was 8.50%. Interest rate on PPF for 2013-14 is 8.70% with a maximum contribution limit of Rs1 lakh. The advantage of PPF/EPF/VPF is that they fall in the exempt-exempt-exempt (EEE) category. EPF is mandatory for salaried employees working for a company having 20 or more employees. You contribute 12% of your basic salary plus dearness allowance (DA) to EPF (employers contribute an equal amount). You also have the flexibility to contribute up to 100% of basic plus DA additionally towards VPF (Voluntary Provident Fund). Your employer will not match your voluntary contribution, in most cases. VPF is directly linked to the EPF account.
The yield on 10-year benchmark government security (G-Sec), which sets the tone of the fixed-income market, was at 8.92% a fortnight ago; it dropped to 8.71% on 14th January.
Finally, there seems to be some respite from runaway inflation. Retail inflation for the month of December 2013, as measured by the consumer price index (CPI), slid to 9.87% from its previous level of 11.24% in November. Wholesale inflation declined to a five-month low of 6.16% in December 2013 from 7.52% in November. According to Care Ratings, RBI may contemplate a rate cut, if the WPI and CPI figures continue to move downwards over the next two months. While inflation in food & beverages moderated, the figures for fuel & light and clothing, bedding and footwear still remain high. Moreover, the bad news is that IIP (index of industrial production) numbers for the month of November 2013 registered a negative growth of 2.1% due to poor performance of the manufacturing sector and lower output of consumer goods, particularly white goods.