scorecardresearchBonds, NCDs, and corporate fixed deposits: This is why it is the best time to invest in fixed income products

Bonds, NCDs, and corporate fixed deposits: This is why it is the best time to invest in fixed income products

Updated: 24 Aug 2022, 12:02 PM IST
TL;DR.
Currently, nearly all fixed income products are offering very attractive returns to investors who can now shift a part of their investment into such assets and make their portfolio more robust and balanced.
Best time to invest in fixed income products and make your investment portfolio robust

Best time to invest in fixed income products and make your investment portfolio robust

Recent rate hikes by the Reserve Bank of India have resulted in an increase in returns from most of the fixed income products giving a tremendous opportunity to the investor to park a good percentage of their total investment into fixed investment products and make the portfolio more robust and balanced.

RBI has been consistently reducing the repo rate since August 2018 from 6.5%. However, the reduction in rate went at a faster pace since the outbreak of COVID pandemic in March 2020 when RBI first reduced the repo rate to 4.4% and then to 4.0% in May 2020.

This reduction in the repo rate by RBI eventually reflected in the drop in the interest rates on various fixed interest products like fixed deposits, bonds, PPF etc keeping a lot of investors away from investing in such asset classes. Investors, especially senior citizens, who depended on monthly income from their investment in such fixed income products had a tough time managing their finances during this period.

A lot of investors shifted their investment money or increased their percentage of investment into riskier asset classes like equity and mutual funds once they saw market rebounding after the big fall in mid of 2020. However, equity and equity linked markets went into negative trend since October 2021 and fell sharply further since the outbreak of war in Ukraine.

The Indian equity market saw unprecedented outflow of money by FIIs since October 2021. Countries across the globe are witnessing high inflation since the outbreak of the Ukraine war forcing central banks of top economies to increase the interest rates to control inflation. These actions by central banks across the world, including RBI in India, reversed the trend of falling interest rates from fixed income products.

Currently, nearly all fixed income products like bonds, NCDs, and corporate fixed deposits are offering very attractive returns to investors who can now shift a part of their investment into such assets and make their portfolio more robust and balanced.

However, investment in these products should be based on an individual's financial plans and his or her risk-taking abilities. It is important to note that this high interest rate period may not last long. Hence, it would be wise for an investor to act quickly and start investing in fixed income products.

Investment in bonds and NCDs are generally seen as better investment options among the fixed income instruments as they not only offer superior returns but they are generally safer and are also tradeable. This means that investors can exit from such investment anytime unlike in fixed deposit, PPF, KVP, post office deposits where investor’s money gets locked for certain numbers of years.

Talking about bonds, there are several types of bonds like GoI securities, RBI bonds, PSU bonds, state guaranteed bonds, tax-free bonds and corporate bonds which the investor can choose from based on expected returns and risk involved. Bonds have option of payment of interest and principal amount on monthly, quarterly, half-yearly, annually or on maturity.

Even some of the corporate fixed deposits offered by NBFCs also offer superior returns than those offered by nationalised banks with options of interest payment on monthly, annual and on maturity. Investors can decide on interest payment based on their financial requirements.

Bonds and NCDs are available to investors through the primary issues and also through secondary markets. Investment in NCDs and Bonds is a very simple process wherein an investor has to provide a few KYC documents and the DP details. Investors can buy them easily from exchanges and various fintech platforms.

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First Published: 24 Aug 2022, 12:02 PM IST