Debt Investment: Part 2

Debt Investment: Part 2

We are discussing about investment asset classes in these days. In the last blog we had discussed about debt investment. In today’s article, we are going to talk about debt investment products and its suitability. In our country, the awareness about debt mark is not as wide. Some debt investment avenue we are going to discuss below:

Government Securities:

It is issued by the government of India through RBI for borrowing from the public to meet various spending. In simple term government take loan from public and return that loan on fix date with fix interest rate. It is the safest product in debt category for capital protection and return. It is also known as gilt securities. Gilt securities include all government bonds, T-bills, state and central govt run instruments.

Post office saving schemes:

It is very famous among the investors as some of post office saving schemes gives saving option and tax benefit both through various schemes. It comes with different investment tenure and return rate. It provides safe investment opportunity to the investors. It is the one of the largest saving vehicle for the investors.

Public Provident Funds (PPF):

PPF is also a saving tool for wealth accumulation in long term. It come with 15 year lock in period and provide fix rate of compounding interest. The rate of interest announce by the govt every year. The investment in PPF and return from PPF both are tax free. The tax saving investment limit in PPF at present is Rs 1 lakh. Many banks are providing PPF facility in these days.

Debt Mutual Fund:

Investor can access debt market’s benefit investing in debt mutual fund. By investing in debt mutual funds investor get the benefit of various type of investment as debt mutual fund deploy their money in various government securities, corporate debt, bank securities etc. The main aim of these mutual fund are to provide capital protection with income generation. It comes with different maturity period so according to the need investor choose schemes very carefully.

Bank fixed Deposits:

It is traditional investment avenue for the investors in our country and is very popular among the investors. It comes with different maturity period. Rate of return on these fix deposits are taxable. Its post tax return is even not able to beat inflation but it is still popular as investors have a lot of trust in bank for capital protection. Keep in mind, fixed deposits upto Rs 1 lakh are covered under DICGC (Deposit Insurance and Credit Guarantee Corporation).

Corporate deposits, bonds and debentures:

Many corporate issues bonds, debentures for raising the money and offer a fixed rate of return. These types of investments carry credit and interest rate risk. Many credit agency issue the rating of these types of schemes. Understand all aspects like rating, tenure and return before investment in these types of schemes.

Its Suitability:

It is very good for those investors who prefer capital protection than return. It is less volatile than equity. It is safe bet for conservative investors. It is ideal investment for those whose goal approaching near. Those who needs regular income flow it is good investment for them. Before investment in debt securities, first assess your time horizon and then invest accordingly. There are wide ranges of debt products offer depending on your investment time horizon.

It is very vast subject and we cannot cover it in one article. If you want more information regarding debt investment or you have any other query related investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Bank Fix Deposit Rate

Declining Fixed deposits Rates – Which one best Nationalised banks or Private banks

Since last one month interest rate on fix deposit have been declining. Now the big question for investors where should they park their money ? These are those investor  for whom capital protection is top priority. Now the option whether they should go with Nationalised banks or Private banks.

 A lot of information about this question is available online and print media also. People often ask me also where they should invest for higher interest rates to lock their savings for one year or more. Over the last one month, long-term fixed deposits (FD) rates have been on a decline. The largest bank of the country State Bank Of India (SBI) has already reduced interest rates, which now stands at 8.5% p.a. for any FD term of one to ten year. The long-term FD rates of SBI are less competitive compared to many other nationalised banks, which still give 9.25%-9.35% p.a.
 

The bigger private sector banks like ICICI Bank, HDFC Bank and Axis Bank also moved quickly towards to reduce their rates. In general these banks often slightly more interest rate offer than SBI. The maximum rates with ICICI Bank and HDFC Bank are 8.75% p.a.; while Axis Bank offers 9% p.a. It means nationalised banks are still a better bet for higher interest rates when compared to big private banks as they are offering 9.25%-9.35%.
 

Smaller private bank like Kotak Mahindra Bank, YES Bank, Karur Vysya Bank and IndusInd bank lowered their rates to 9%-9.25% p.a. The cooperative bank like Saraswat Bank was offering 10% simple interest paid quarterly, which is now reduced to 9.25%. While locking at 10% is not possible today from well known banks, nationalised banks can get you 9.3% to 9.35% interest for a FD of one to two years tenure, which is a good option. Few cooperative banks are offering 9.75% to 10.25% on FDs today. But safety of your funds should have higher priority than 0.5% to 1% more interest. And these banks charge higher penalties for premature withdrawal and therefore liquidity of the FD before maturity can be a concern. Some bank’s fix deposit rate as given below:

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com