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Time for Debt Schemes?

With easing inflation and falling bond yields, in expectation of an interest rate cut, debt schemes registered a quick rally. Over the past one year, income schemes delivered an average return of 12.60%; the best scheme delivered as high as 19.20% returns. With equity schemes in the limelight for the better part of 2014, debt schemes, which had shocked investors in July 2013 with a sudden fall in value, have turned attractive again. In our Cover Story this time, we have analysed how these categories of schemes performed in the past 12 years, over different interest rate cycles. The results provide further confirmation of our belief that, while investing in debt schemes, timing is crucial to get optimum returns.


Our survey of Moneylife readers shows that many are expecting an interest rate cut, and, quite naturally, expecting long-term schemes to do better than short-term schemes.


Which should you choose? Turn to our Cover Story for a comprehensive analysis of debt schemes.


On the subject of investing, should you invest in market leaders rather than ‘emerging leaders’? R Balakrishnan explores the pros and cons of investing in blue-chip stocks. Turn to our Smart Money section to know more.


For some strange reason, the market regulator, Securities and Exchange Board of India seems to think that it is doing a splendid job. Look at the utterly sordid Pyramid Saimira story Sucheta narrates in her Crosshairs section, where she points out how SEBI officials and blatant market manipulators have got away lightly with brazen fraud.


Everybody seems to be singing praises of the forthright speeches of RBI governor, Dr Raghuram Rajan, on the menace of corporate loan defaults. The Indian taxpayer pays the price for the mammoth loan write-off by banks. But nobody seems to realise that it is RBI which, as the banking regulator, makes them file myriads of reports and sits on their boards. Will RBI show a little more responsibility and pro-activeness about the menace, asks Sucheta.


As always, write to us with your views and suggestions. We love to hear from you.


SEBI mulls norms for issuance, listing of ‘municipal bonds’

Municipal bonds serve as an efficient tool for local bodies to mop up funds and can be extensively tapped to meet funding needs of urbanisation, while providing a new investment avenue to public and institutional investors


Market regulator Securities and Exchange Board of India (SEBI) will soon come out with a new set of norms to enable issuance and listing of municipal bonds — a popular financial product in developed countries like the US. This move would help channelise household savings and provide a new investment avenue, the market regulator feels.
Under the proposed framework currently under consideration of SEBI, municipal bonds would be debt securities issued by states, cities and other government entities which will use the money for infrastructure developments like buildings, schools, highways, hospitals, sewage systems and other projects for the public good.
An internal SEBI panel, the Corporate Bonds and Securities Advisory Committee (CoBoSAC) had constituted a sub-committee for specifying the disclosure and other requirements for issuance and listing of municipal bonds.
The sub-committee has submitted its report to the CoBoSAC, whose recommendations would form the basis to draft norms for way ahead of these bonds and the final guidelines would be put in place after going through a public consultation process on the draft norms, a senior official said.
Commonly known as ‘muni bonds’, these investment products are very popular among investors in many developed nations, especially the US, where muni bonds have attracted investments totalling over $500 billion and are among preferred avenues for household savings.
These bonds can be issued by urban local bodies to finance infrastructure such as water supply and sanitation.
They serve as an efficient tool for local bodies to mop up funds and can be extensively tapped to meet funding needs of urbanisation, while providing a new investment avenue to the public and institutional investors.
The market for ‘muni bonds’ is yet to take off in India even though few municipalities here have offered such products in the past, while Ahmedabad Municipal Corporation in Gujarat was the first to launch such a bond way back in 1998.
While there is already an existing framework for issuance of muni bonds, including by the Ministry of Urban Development, there are no unified norms to bolster this nascent market.
The fresh push for muni bonds has come at a time when the regulators and the government are looking at ways to channelise household savings into the market to boost overall economic growth.
India’s savings rate stood at little over 30% of the GDP in 2012-13 fiscal while household savings rate was nearly 22% during the same period.
In India, muni bonds were issued for the first time by a municipality in Gujarat, the home state of Prime Minister Narendra Modi.
Way back in 1998, Ahmedabad Municipal Corporation had become the first municipality to come out with muni bonds.
Since then few others, including Greater Vishakhapatnam Municipal Corporation, had issued such bonds.
India would need more than $800 billion investments to cater to the urban infrastructure needs over two decades, as per industry chamber Assocham, and muni bonds can serve as an effective fund-raising instrument in this regard.
Besides the US, other countries with a developed muni bond market include Canada and Russia.




3 years ago

The concept to fund urban infrastructure is good. But sadly this would be misused to fill pockets of muncipal councillors, officers. Even in USA urban authorities become bankrupt. Hope the extend of siphoning is controlled in case these bonds floated

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