Bharat Bond ETF Investors can Earn Up to 150 bps Over Tax-free Bonds

It makes sense for a retail investor at higher tax brackets to subscribe to Bharat ETF units. Wealthy investors have now turned risk-averse amid economic uncertainties. They now prefer secured returns to astronomical returns.

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Here’s why investors seek safety of debt investment

Many investors have shied away from the equity markets. With investable money, they are seeking 7.75 per cent RBI Saving (Taxable) Bonds. Since the instrument is a fixed deposit, is not tradable in the secondary market. But the instrument could be a steady long-term source of interest income.

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Lenders seek top-ups, replacements for debt schemes given as collateral for loans

After specific fund closure, brokerages are not willing to allow other trading limits for investors, who earlier availed credit limit against their debt fund.

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In flight to safety, Bharat Bond ETF trumps other fixed-income products

Due to the disruption on account of Covid-19, there is further risk aversion and a flight to safety. Because of the credit risk aversion, investment in a basket of AAA rated government companies that have a target maturity date and low cost is the best option.

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Liquid funds, GOI bonds are better bets

The GOI bond issued by the RBI is one of the safest investments that one can get in today’s environment and earn as high as 7.75%. The government has yet not cut rates here even though small savings are down.

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NCDs offer 4-6% more than bank FDs, but limit your exposures

Typically, a AAA rated paper trades 100 basis points over the 10-year GSec, while a AA rated paper commands a 200 basis points premium. Currently, the 10-year benchmark trades at 6.4 per cent, which means a AAA rated NCD should trade at 7.4-7.5 per cent and a AA rated NCD at 8.5-9 per cent.

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Investors move away from preference shares to NCDs

Investors are looking to exit from preference shares. Investors primarily used to invest in preference shares as dividend income was tax-free up to Rs 10 lakh, and thereafter, it was to be taxed at 10 per cent. Technically, post budget, there is parity between interest and dividend income.

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Investors in higher tax bracket find solace in tax-free bonds post Budget

Tax-free bonds are the only instruments which are truly tax free and will carry that status till maturity as it was approved by parliament. There is interest amongst investors in these bonds especially after the budget, when dividend from preference shares started getting taxed, as per tax slab.

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Gold, fixed-income wrap 2019: Yellow metal’s prices zoom, long-term bonds deliver

After the debacle of Infrastructure Leasing & Financial Services (IL&FS) in 2018, the magnitude of defaults increased as names with good credit ratings joined the list of defaulters. This spooked bond investors’ sentiment further.

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SIB TIER 1 BOND COUPON RATE TRIGGERS DEBATE ON PRICING

Investing in SIB Tier 1 bond that yields 13.75 per cent could be a good investment now given the fact that SIB has a good track record and has been reporting profit quarter after quarter.

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