Sept 2020 Economic Times
To be sure, banks have reduced their fixed deposits (FD) rates due to increased inflows and lack of safe lending opportunities.
To be sure, banks have reduced their fixed deposits (FD) rates due to increased inflows and lack of safe lending opportunities.
Savers in lower tax brackets are set to benefit from a new set of sovereign debt papers being offered from next month, with the central bank selling the floating-rate securities linked to National Savings Certificates for the first time to individuals and Hindu Undivided Families (HUFs).
Investors come into MFs so that they can exit according to their cash-flow requirements. Except for triple A-rated papers, liquidity for lower-rated papers has been limited. Investors want to stick with larger-sized schemes, where liquidity is expected to be well-managed.
Market had discounted rating downgrade (one notch) by Moody’s. “Excess liquidity in the system is driving the bond yields.
It makes sense for a retail investor at higher tax brackets to subscribe to Bharat ETF units. Wealthy investors have now turned risk-averse amid economic uncertainties. They now prefer secured returns to astronomical returns.
Many investors have shied away from the equity markets. With investable money, they are seeking 7.75 per cent RBI Saving (Taxable) Bonds. Since the instrument is a fixed deposit, is not tradable in the secondary market. But the instrument could be a steady long-term source of interest income.
After specific fund closure, brokerages are not willing to allow other trading limits for investors, who earlier availed credit limit against their debt fund.
Due to the disruption on account of Covid-19, there is further risk aversion and a flight to safety. Because of the credit risk aversion, investment in a basket of AAA rated government companies that have a target maturity date and low cost is the best option.
The GOI bond issued by the RBI is one of the safest investments that one can get in today’s environment and earn as high as 7.75%. The government has yet not cut rates here even though small savings are down.
Typically, a AAA rated paper trades 100 basis points over the 10-year GSec, while a AA rated paper commands a 200 basis points premium. Currently, the 10-year benchmark trades at 6.4 per cent, which means a AAA rated NCD should trade at 7.4-7.5 per cent and a AA rated NCD at 8.5-9 per cent.