With the rise in interest rates, corporate bonds are offering a much higher rate than fixed deposits. Consider this: while corporate bonds are offering an interest rate of up to 13 per cent, fixed deposits are giving an average interest rate of just 5-6 per cent for a tenure of one to three years.
“Corporate bonds in the fixed-income category are one of the best options to invest in. Currently, the top-performing corporate bonds are Muthoot Fincorp (subdebt) with yield of 10.50 per cent; Indiabulls Housing Finance Limited (unsecured) with yield of 14.25 per cent; and Piramal Capital & Housing Finance Limited (secured) with 11.4 per cent yield,” says Ankit Gupta, Founder of BondsIndia.com.
Not only corporate bonds, state bonds are also performing well, currently. “The kind of return that state bonds are offering on a 10-year paper is approximately 7 to 8 per cent in range which is pretty decent as compared to G-Secs. So obviously it is worth investing in State Bonds as if now,” says Gupta.
While corporate bonds are offering high returns due to the rise in yields, it is important to understand that they are riskier than fixed deposits. Hence one must check the credit quality of the issuer carefully or consider investing via the debt fund route where the portfolio is diversified. “Never put all your money in bonds or fixed deposits of a single issuer or companies from a single sector. Given the current macroeconomic backdrop, one should invest only in the highest-rated bonds or fixed deposits, even if it means sacrificing some returns. The choice also depends upon the investors’ income levels as if they fall in higher income tax slabs then debt mutual funds may be a better choice for them purely in terms of post-tax returns,” says Alok Agarwala, Chief Research Officer, Bajaj Capital Ltd.
Copyright©2022 Living Media India Limited. For reprint rights: Syndications Today