Equity investors in India had quite a hard time in 2022 as markets offered not much to them throughout the year. This was more to do with serious geo-political issues, high inflation, depreciating rupee and rising interest rates across large economies. Indian markets were also badly affected because of continuous selling by FIIs during most of the months of the year 2022. Performance of the midcap and smallcap indices in 2022 was even worse.
This happened despite the Indian economy performing much better than most of its global peers in 2022 and we also had a good demand situation in India. While stocks of some of the sectors like banking and financials did have a good time, stocks from others sectors like IT had a very poor year because of falling demand in the US and Europe.
This situation of uncertainties is still persisting as we have moved into the new year with major economies including the US still having a lot of issues and recession is yet a threat. Even though Indian markets were strongly supported by domestic investors including mutual funds in 2022 when FIIs were selling heavily, the say of FIIs is still much bigger which means the equity market may take some time before there is stability and a clear visibility for the retail equity investors.
With nearly zero growth in their equity portfolio, equity investors are now actively looking for avenues where they can earn inflation adjusted positive returns. Fortunately, there are now many such fixed income products available which are giving much higher returns than the traditional fixed income products and that too at much lower risk than market-linked products.
Here I am explaining a few of such fixed income products:
P2P lending platforms
Some of the leading P2P lending platforms now offer returns between 8-12.5% in their various investment schemes with a lot of flexibility and shorter tenures than bank fixed deposits. Some of the schemes offer 8% returns with full withdrawal facility. Whereas the fixed deposits in most of the nationalised banks does not offer 8% interest even for a cumulative 5-year fixed deposits.
Even NRIs with an NRO account can invest in P2P lending platforms. Another advantage of investing in a P2P platform is that they do not deduct upfront TDS savings a lot of investors from unnecessary hassles. Also, these platforms offer superior platform experience with a dedicated dashboard for customers making it very easy to invest and manage their money. These platforms are regulated by RBI which provides the required confidence to the investors.
Bonds and NCDs
It has been a tremendous year for the bonds and NCDs market in India and customers also got a very good opportunity to earn higher returns on account of rising interest rates in India as well. Bonds and NCDs are gaining a lot of interest among the retail investors now. A lot of companies are enabling online sell and purchase of bonds and NCDs which is further helping the customers to adopt these products.
Customers now have a wide range of choice when it comes to buying bonds and NCDs in terms of returns, ratings, interest and principal payout options and minimum amount for investment. Depending upon its financial goals and risk appetite customers can choose between various bonds and NCDs and earn handsomely.
Currently investors can earn between 7%-12% p.a. yield depending upon which bonds he or she buys and yield in some of the NCDs is up to 15% p.a. Most of these products carry much lower risks compared with market linked products like equity and equity linked mutual funds.
Rising interest hikes by RBI in 2022 has reversed the interest trend in India and now fixed deposits are again becoming attractive to a lot of investors who work very worried when the interest rates on 5-year fixed deposits are reduced to around 5% p.a., today some of the leading NBFCs are offering fixed deposit where the effective yield for 5 year cumulative fixed deposit is around 10% for non-senior citizens and above 10.6% p.a for senior citizens. These fixed deposits also come with monthly, quarterly, half-yearly and annual interest payout options other than maturity interest payout option.
Customers can also invest through systematic deposit plan with smaller investment amounts. NRIs can also invest in these fixed deposits and the process is very simple. Customers can buy this fixed deposit online on some of the fintech platforms making it a really good investment option in the current scenario. Investors can park their money for 5 years at a good interest rate that too at much lower risk than market-linked products.
Guaranteed income products
The interest rate hike in 2022 has also helped guaranteed income products to offer superior returns products and the current plans in the market offered by top insurance companies are very attractive in terms of multiple benefits they offer. The post-tax yield offered by some of these products is close to 7% p.a. You can get nearly 10 times the insurance cover of the annual premium amount.
You get tax deduction under section 80C of the IT Act on the annual premium plus tax exemption on the maturity payout. All these benefits make these products very attractive for those investors who are looking for guaranteed long term income options.
Fixed income products, discussed above, offer great options to investors to rejig their investment portfolio in their favour as they are getting superior returns at much lower risks whereas returns from market linked products are likely to stay uncertain at least for a few months in 2023. Some of the products where investors can invest for a very long term should be considered for investment on priority basis before tapering of interest rates starts.
It is important that investors should try and get complete understanding about these fixed income products first and then invest in them as per their financial planning and risk appetite. They can also take advice from a financial advisor in case they are not sure. This would be a very wise step by investors in the beginning of 2023.
Mukesh Vijayvergia, Founder of Nishkaera Financial Advisory and Wealth Management Private Limited