Dec 2020 Economic Times
Wealthy individuals are buying long-term government bonds with 15-to-30 year maturities as they offer returns nearly double of the available short-term securities, including Treasury Bills and other money market instruments.
Wealthy individuals are buying long-term government bonds with 15-to-30 year maturities as they offer returns nearly double of the available short-term securities, including Treasury Bills and other money market instruments.
The risk is relatively low. However, the bonds don’t have any explicit guarantee. There is an implicit guarantee as it is assumed that the state government will repay in case the municipal corporation faces any cash flow issues.
Earlier, the gap between G-Secs and SDLs or the premium on SDLs in relation to that of G-Secs, used to hover around 70 to 80 basis points, but this has fallen to 40 to 50 basis points after RBI entered the market with OMO.
Broadly, if you invest a lump-sum now, you get regular payouts – be it monthly, quarterly or annually. The returns work out to 5.75-5.9 percent annually over 20-30 years.
Investors should check for YTM, which is nothing but return on investment. This should not be confused with current yield of the bond.
We have been receiving a lot of queries from investors seeking information on REIT investments. If you have surplus money, you can invest about 5-8 percent in those listed units earning higher than the average returns in debt investments.
These bonds are a good fit for investors who want to buy and hold till maturity.
Over the long-run, gilt funds have delivered returns. These funds have given more or less comparable returns vis-à-vis other duration products.
Wealthy investors are breaking their low yielding fixed deposits in banks to invest in bank perpetual bonds, which earn about 150-200 basis points higher interst rates at the cost of higher risk.
Chasing historical return is risky and the investors of recently launched Bharat Bond Exchange Traded Fund (ETF) are also realising this.