Why is the right time to look at effects?

Investment in Fixed Deposits (FDS) is a habit transferred by generations in India. Our parents and grandparents were taught to trust the bank, and for good reason. FDS has long been the best investment option for thousands of Indian households, as it is considered ‘safe’, which often offers a guaranteed return with a low risk profile. However, as our options expand, it is essential for investors to look beyond traditional instruments and investigate options that provide potentially higher returns, better tax efficiency and greater flexibility. The first episode of Mint Bond Street dialogues Vishal Goenka, co-founder, Indiabonds in conversation with Neil Borate, editor-in-chief, The Fynprint. Goenka talked about fixed income investment options that go beyond the humble FD. Check out the full interview below. In simple terms, fixed income instruments are a loan that provides you to an entity, such as a company or government, in exchange for regular interest payments and returning your principal at the time of expiration. While FDS is one form of this, it’s just the starting point. FDS is the very basic form of saving. If you put money in a fixed deposit, you essentially lend to the bank. The bank, in turn, takes this money and lends it to businesses or individuals at a higher interest rate, making a profit. “Most Indians, I think, start with fixed deposits and every instrument has its pros and cons. In my opinion, fixed deposits are exceptionally simple, easy to understand. One disadvantage is that they are fully taxable, so people have problems at higher pages,” Borate said. If you invest directly in fixed income or bonds, make your own choice to borrow and earn you potentially higher interest rates than fixed deposits in the process. Other general fixed -income options include the Public Provident Fund (PPF) and Employee Provide Fund (EPF). “Both are essentially government tools. They have tax benefits. So PPF has a 7.1% stake currently tax -free. EPF currently has an 8.25 interest, which is also tax -free,” Goenka explained. However, these instruments are structurally illiquid, with an inclusion period of 7 to 15 years and also not transferable. This lack of liquidity can be a major disadvantage if you unexpectedly need access to your funds. Another popular alternative in the fixed revenue space is debt mutual funds. The main advantage of debt funds is that it offers a diversified portfolio effects run by professionals. Furthermore, they offered tax benefits through indexing, although it was largely removed. Although ideal for managing liquidity and capital needs in the short term, they may not offer the same level of granular control or potential for higher returns than individual effects. According to Goenka, fixed-income investments are in a well-balanced portfolio. He said: “The primary question is that everyone should have fixed income in the portfolio. People already have fixed income in the portfolio, and they don’t know about it.” The rise of individual effects for part of investors who seek greater control, seek transparency and potentially higher returns, and invest in individual effects are a compelling alternative to other types of fixed income. Once it considered the exclusive domain of institutional investors, bonds have become more accessible to individual investors due to the rise of online bond platforms. These regulated platforms, approved by Securities and Exchange Board of India (Sebi), offer retail investors the chance to buy and sell individual effects with ease. However, Goenka strongly advises to be careful: “Buy only of regulated platforms. There are many platforms that sell different types of financial security, which calls it fixed income. Just look there is a list. Make sure the platform you buy is regulated. Secondly, just make sure to buy your poured securities or listed effects,” he said. Important factors that you should consider when investing in bonds investing in the bond market requires some important concepts. Goenka set out the most important factors for new investors. The first step is to match your investment horizon at the expiration date of the mortgage. Investors should align the investment with their personal financial goals. Do you need the money for a short -term goal, such as a car purchase in three years, or a long -term, such as retirement in 15 years? If you have a specific life event in mind, such as buying a home, you can buy bonds that are mature at that exact time, and ensure that your funds are available if you need it without the risk of market volatility. It is also important to understand the difference between the Couponand’s maturity (YTM). The coupon is the fixed interest rate that the mortgage issuer promises to pay, just like an interest rate on an FD. However, the YTM is the actual return you will receive if you buy the mortgage today and keep it until it expires. This is the figure that truly matters. A Bond can be purchased at the original price (par), at a premium (above par) or at a discount (below par). Goenka explained: “If you bought a mortgage above par, your yield or yield will be lower than the coupon. And if you buy a mortgage below par, then the yields or yields will go higher.” All SEBI-regulated platforms are now the command to display the YTM of a mortgage, making this important information easily accessible to investors. Another critical factor is the rating of the district. Interestingly, he used the analogy of a school report card for a business. Each listed mortgage is assessed by a SEBI-regulated credit rating agency, which assesses the financial health of the issuer and the ability to repay his debt. Ratings range from Triple-A (AAA) for the safest, typically large public sector companies, to lower grades. Within the investment grade category alone, there are ten layers of risk profile. Goenka advised individual investors to stick to higher assessed effects as they provide a better balance between risk and return. ‘I really discourage buying triple B minus or below, and they are a very small part of the entire bond market. The credit rating will tell you, and usually in the current market scenario, for example, will give threefold a, double a plus, your 6-7%, double a plus you give about 8%, a single A is where you get a small risk cane area, and that is to give 10%if a person is a threefold B-minus. 13% and this is the risky of the 10 rating structures. Although credit ratings provide a good guideline, it is not absolute and can change based on the company’s performance and economic conditions. How market dynamics can affect your bond prices is directly affected by interest rates, and it is a relationship that can use smart investors to their advantage. The ratio is inverted: As interest rates rise, the bond prices fall, and as it falls, the prices of the mortgage rise. The reason is simple. A mortgage issued at a higher coupon rate becomes more valuable when new effects are issued at a lower rate. This can lead to capital gains for the investor. Goenka points out that in the current environment, with interest rates on a possible downward cycle, it is a favorable time for fixed income investments. This is because existing tires with higher coupon rates will appreciate their prices. This means that investors may be able to earn capital gains in addition to the regular interest payments. ‘India has just entered a rate cutting cycle. I would think that at least two years we would keep interest rate stable or downward. So it’s a good time in the interest rate cycle, “he explained, making it a good time for investors in fixed income to enter the market. Final thoughts Goenka concluded the discussion by confirming the importance of effects in the portfolio of an investor. “I think fixed income or effects is a must in every portfolio … You always make sure that 20-30% of your portfolios in fixed income assets are to get your stable returns,” he said. He encouraged investors to do their own research, read the issuer’s information memorandum and compare prices on different platforms. “The power of information is the most important aspect of making a financial decision or transparency, as we call it. Before you invest, you can actually look, and you need to read the issuer’s credit rating, the issuer’s information memorandum,” he said. Note to Readers: Bond Street, Livemint’s new fixed income destination, is powered by Indiabbond. Disclaimer: Investments in debt effects/ municipal credit effects/ securitated debt instruments are subject to risks, including delay and/ or default. Read all the presentation -related documents carefully. The views expressed in this article are those of the author and do not necessarily reflect the views of HT Digital Streams Ltd or its subsidiaries.