As per regulatory guidelines, interest on the perpetual bonds will be paid out of net profit for the current year. Banks can use revenue reserves to pay interest, in case there is a shortfall, subject to RBI guidelines.
Post IL&FS rating downgrade, all NBFCs are resorting to all avenues to raise funds. Corporate deposits are one of them, as companies are trying to offer additional higher rates than bank fixed deposits.
Despite yields shooting up, the demand for these NCDs has shrunk.
Safety is a priority for investors in this environment. They will opt for only companies where there is comfort.
As current account deficit widens due to higher oil prices, interest rates are expected to move further up. The 10-year benchmark could trade between 8.20 and 8.35% in the next three months.
Short-term bond yields are attractive and most of these bonds charge low expense ratios. As they are open-ended schemes, you can sell out if need be. That makes short-term bond funds a lucrative investment option.
Last two years, none of the debt mutual fund schemes have performed up to the mark. Investors have switched to retail bonds as they seek to earn higher interest income regularly.
More non-banking finance companies are likely to come with higher rates as they jostle to tap the retail money.This will also help those companies to expand retail reach, a key business driver for them.
Retail bonds are coming back to the market with investors showing encouraging response to quality papers. Shriram sounds a credible name among retail investors who have already tasted its corporate fixed deposits with no default record.
Performance is dismal for income funds in the past one year. The value erosion is higher as these funds invest heavily in long maturity papers, which bled in past months.
As interest rates are expected to rise, it makes sense for investors in the lower tax slabs to invest in fixed deposits maturing in one year. Investors will also get an opportunity to roll over their fixed deposits at a higher rate