Government Securities
Government Securities are considered the gold standard when it comes to investment safety. They enjoy a sovereign status.
Although never promising very high returns, G-Secs usually give an added advantage of 2-3% over FDs.
When you invest in G-Secs, you not only give yourself a safe option with predictable growth - you also invest in the development of the country.
G-Secs are issued to fund various government expenditures ranging from development of roads, highways, power generation to strengthening our army & public services.
When State Governments issue bonds, they are called SDLs or State Development Loans.
Some other bonds can also be technically classified under G-Secs - like SGBs & Tax-free bonds.
Feature
- Sovereign Safety
- Government Backed
- High Safety With Moderate Returns
- Contributes Towards Development Of The Nation
Sovereign Gold Bonds
SGBs are one of most profitable ways to invest in ‘digital’ Gold. Issued by RBI, they
too enjoy a sovereign status, and are issued in denominations of 1 gram of Gold.
While the price of Gold determines the value of the unit held by you, these bonds
give you an additional return of 2.5% per annum.
The tenure for SGBs is 8 years, but they can be traded in the market in case you want to purchase the bond with a shorter term to maturity, or to sell your ‘digital’ Gold before maturity. With extremely high safety and a track record of giving an average of 10% annual returns for the past 15 years SGBs are a smart and convenient way to invest in Gold.
Feature
- Gold In Digital Form
- 2.5% Advantage Over Other Digital Gold Investments
- Easy To Keep Safe, Store And Transfer
- Can Be Sold In The Secondary Market Before Maturity
PSU Bonds
PSU Bonds are issued by Government Sector Companies and Undertakings that the Central or the State Government has 51% or more stake in.
Considered second only to sovereign bonds in terms of safety, PSU bonds find great appeal amongst safety conscious investors who want more from their money.
There are different types of PSU bonds, including fixed-rate bonds, floating-rate bonds, inflation-indexed bonds, zero-coupon bonds, etc… with terms and conditions that suit various investment requirements.
The typical tenure for PSU bonds is set between 5 to 10 years, therefore best suited to long-term investments. However, they can be sold easily if the investor needs liquidity.
Feature
- Second Only To Government Securities In Safety
- More Returns On Investment Than Fds
- Good For Long-Term, Risk-Averse Investors
- Wide Range Of Issuers To Choose From
NBFC Bonds
NBFC Bonds are issued by Non Banking Financial Institutions - some of the popular ones you may have heard of are L&T Finance, Shriram Transport Finance, Bajaj Finance, LIC, etc…
NBFC Bonds usually offer higher interest rate than G-Secs and have to be gauged for their safety by the investor. SEBI regulated rating agencies assign ratings where AAA is considered the safest.
NBFCs cannot raise funds like Banks, they can only do so through term-deposits - therefore Bonds become one of the primary ways in which NBFCs borrow money, often at rates more advantageous than what Banks offer them.
Feature
- Big Range Of Returns
- Best For Investors With A Wide Risk Profile
- Offers Higher Returns Than Bank FDs And Government Securities
- Great Tool For Diversifying Your Fixed-Income Portfolio
NCDs / MLDs
Non-Convertible Debentures / Market-Linked Debentures
Market-Linked Debentures or MLDs are a type of Non-Convertible Debenture or NCD.
Called NCDs because they cannot be converted into Shares or Equities. The borrowers get to accumulate long-term capital appreciation, while investors get higher rate of return with medium risk.
Usually issued by high-rated corporates, in the 1-7 year tenure range - they pay interest periodically or at maturity.
Taxable NCDs offer investors an added tax advantage when they make Long-Term Capital Gains.
MLDs are issued by companies or financial institutions through a private placement route. They have a fixed maturity period ranging from 12 to 60 months. The returns on MLDs are not fixed but depend on the movement of an underlying market index or instrument, such as equity benchmark, government yield, gold index, etc… specified in the scheme document.. The returns on MLDs are paid at maturity along with the principal amount.
Feature
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Tax-Free Bonds
As the name suggests, the interest earned from investing in these bonds is not taxable.
Due to this feature, these bonds are very attractive for HNI looking to create a safe store of wealth that keeps growing at inflation beating rates.
Typically offering returns in the 5-7% range, the tenure for these bonds is set mostly at 10, 15 or 20 years.
Feature
- Used To Save Tax
- Tax Adjusted Returns
- Highest Rating Of AAA
- Usually Issued By Psus
Bond ETFs
Debt Exchange Traded Funds (ETFs) are simple investment products that allow the investors to take an exposure to the fixed income securities. These debt ETFs combine the benefits of debt investments with the flexibility of stock investment and the simplicity of mutual funds. These Debt ETFs trade on the Stock Exchanges, like any other company stock, and can be bought and sold continuously at live market prices.
Debt ETFs are passive investment instruments that are based on indices and invest in securities in same proportion as the underlying index. Because of its index mirroring property, there is a complete transparency on the holdings of an ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expense ratios as compared to mutual funds.
Feature
- Curated Buckets Of Bonds
- Choose Balanced Bond Investment Options
- Bond ETFs Tradable And Can Be Sold On The Exchange
- Wide Range
54-EC
54-EC Bonds are most popular for the function of compensating for long-term capital gain tax and are specifically meant for investors earning long-term capital gains and would like tax exemption on these gains.
These bonds do not allow any tax exemption on short-term capital gains tax.
The investment in 54EC bonds ranges from 1 bond amounting to Rs. 10,000 upto 500 bonds amounting to Rs. 50 Lakhs in a financial year.
Usually, these bonds come with a lock-in period of 5 years and are non-transferable.
Feature
- Specialised Function To Save Property Tax
- Mostly Used While Selling Old Property
- No TDS On Interest Income
- Rigid 5 Year Lock-In
