The FD rates have gone up and are pretty attractive. In fact, we tell our clients that we should invest some amount in debt given high yields. But …
We are not investing in any Corporate FD not even the largest NBFC.
No doubt its AAA rated
Yield is 8.35%
The company is growing 30% each year
Highly regulated entity
But …
There is a risk of capital
It is not highly liquid
No interest if broken in 6 months
High penalty if not held till maturity.
Moreover, I have a much safer option with possibly higher returns if held for 2-3 years.
Introducing Long Duration 𝐆𝐎𝐕𝐄𝐑𝐍𝐌𝐄𝐍𝐓 𝐁𝐎𝐍𝐃 𝐅𝐔𝐍𝐃𝐒 (Zero Credit Risk)
Thanks to multiple rate hikes, G-Sec yields have gone up. G-Sec with a duration of 5-20 years is now yielding 7.35%-7.42%. All assets are cyclical and the debt cycle is short. The yield was at 5.5% in 2021
With Inflation expected to cool off, no excessive borrowing and high GDP growth, the yields look like it is peaking off now and go down from here.
So if the yields soften even by 1% in the next 3 years and you have a debt fund with an average maturity of 10 years, you will end up making 30% returns. Plus if you wish to exit then the redemption period is 1 day and no penalty.
10% 𝐟𝐫𝐨𝐦 𝐆𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐨𝐫 9% 𝐟𝐫𝐨𝐦 𝐂𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐞?
You Choose!
Note: This calculation is made with a view of falling interest. There can be a situation where interest rates may not fall or may go up. Ask us questions to clarify and do proper research before investing.
