For a long time, my Idea of savings and Investment has been Fixed Deposits(FD) and Recurring Deposits in Banks. And this perception is not of my own but instilled in me by my parents. Being a middle-class family and in an age without internet banking, my parents were happy with the savings in the form of FD.
But lately, I have seen that the FD returns are barely matching the Inflation rate. The FD return offer by Big banks is around 7% max and some cooperative banks are bold enough to offer 8-8.5%. While the returns look better than the previous average of 6% it is still nowhere near the real inflation rate. According to the numbers available on the internet, the inflation rate ranges from 6% - 9.5%. So, are there any better options available for the guys to invest in?
I tried the P2P lending platforms like the 12% Club and FairCent. And the returns while were attractive, it was very risk. I was lucky enough to pull out in time but I know many have lost money as bad loans. P2P Lending risk factor is too much. Is there anything else to invest?
While stocks and indices are available on the spectrum that too comes with risk. MF is a good investment choice but again you are not the person handling the money and may wind up in problems like the Quant being accused of front-running. Not say MF is problematic but no Instrument is available without the risk. If we are not not confident enough, FD is still the safest bet. But what if the person wants a little more return, but little risk?
Enters Bond, Corporate Bond. These are like loans taken by entities like state government, central government and big corporations. They are in constant need of money for various projects and for that, they issue bonds. Bonds are loans taken by these entities and for a tenure that can range from months to years to decades. The bonds issued by the Govt entities are called G-Sec Bonds.
Lets move to the earning part. If we are to compare the returns of the Bonds it will sit somewhere between FD and Index. In simple terms the returns of FD < Bonds < Equity. That being said, I had seen Bonds offering returns of 9% up to 12%. While I have seen only 2 such bonds so far which provide a return of 12%, we can safely assume a return of 10% on the bonds.
Another key factor with the bonds is the rating. All the issued bonds come with a rating that ranges from AAA (Being the most reliable) to CCC (being the most highly vulnerable and more likely to fail to fulfil the contract) Now, it is the personal choice of the investor on how much risk he is willing to take with the Bond. But it is advised the the investor should account in the factor of the bond rating also along with the returns. There are other factors that comes into play regarding the bond which can increase the return but that seems to be high-level game and a topic for another day. Now instruments come with a twist where the investor can sell to maximise the profit and make the gains up to 16%. But that hack involves tracking the RBI guidelines and other parameters. Now that's a trick for another day. Let me learn some more and will share the details in the post.
Thanks for reading the post. I have been studying the market for about 6 months now. And I can confidently say that I know nothing. The more I research, the more I learn that I need to know more. Let's learn one topic at a time to make a living in the market. See you in the next episode. And before I end the post, I would like to thank IndiaUnited community and BeAwesome community of introducing me to wonderful people.
PS : All the images are from my account from canva and snapchat.
