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

Understanding Bonds – Part4

Today we will discuss about different types of bonds. In India, there are several types of bonds available to investors, including ones that are only sold privately and a tax-savings bond that releases the investor of a tax burden.


Public Sector Undertaking Bonds (PSU Bonds):


If you're looking for a medium- to long-term investment in the Indian bond market, a Public Sector Undertaking bond can be a good choice. PSUs are issued and backed by the government of India, but they are usually sold on a private basis. The Indian government targets investors themselves and offers the bonds to these isnvestors at fixed rates.


Corporate Bonds:


A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear.These are more traditional bond instruments, which are offered by private corporations in India for terms that can last up to 15 years. Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income investments because of the risk the investor must take on. The company's credit quality is very important: the higher the quality, the lower the interest rate the investor receives. There are two other of corporate bond. One is convertible bond which the holder can convert into stock, and the other is callable bond which allow the company to redeem an issue prior to maturity.

Financial Institutions and Banks :


Bonds issued by financial institutions and banks in India are a vibrant financial instrument and make up more than 80 percent of the bond market. Bonds issued by financial institutions and banks are regulated well and come with good bond ratings. Large-scale investors are some of the most important investors in this category.


Emerging Markets Bonds:


These bonds, issued by the Indian government, are issued abroad as hard currency to raise capital for economic development. What's different about these bonds is that they are usually issued in U.S. dollars or the Euro, which can make them more attractive to investors in those countries. Also making these EM bonds attractive is the interest rate, which while high is typically paid by the issuer. The risk comes in that countries like India have a lower credit rating and the success of the bonds is tied to the success of the country's economic development.

Tax-Savings Bonds:


The Indian government issues special bonds that allow its citizens to be either partially or fully released from paying taxes. Most of them are issued by India's Reserve Bank. The upside for the investor is that by purchasing this bond, they are released from paying taxes on the related interest income, as long as they hold the bond until it matures.


Zero-coupon Bond:


This is a type of bond that makes no coupon payments during the holding period but instead is issued at a considerable discount to par value. For example, let's say a zero-coupon bond with a Rs 1,000 par value and 10 years to maturity is trading at Rs 600; you'd be paying Rs 600 today for a bond that will be worth Rs 1,000 in 10 years.

Regards,

Arvind Trivedi

Certified Financial Planner