Hi , Moderators and Experienced Traders , Please give your opinions about Investing in Bharat bonds , Liquid bees , Overnight funds / Liquid funds in the aspect of better returns and safety and anyother advantages or disadvantages left .
As far i collected these informations :
As per safety Bharat bonds , Liquidbees , overnight funds are the safe instruments in present condition and then comes Liquid funds
As per instrument informations ,
Bharatbond can give 6-7 % returns yrly ( investing in psu debt bonds , backed by Govt , safe for money)
Liquidbees 3-4 % only ( investing in Triparty , safe for money )
Overnight funds also 4-5 % ( investing in Triparty for daily maturity , backed by ccil , so safe for money)
Liquid funds 5-6 % , better return than overnight funds ,but little bit behind in safety concerns after Franklin MF issue , so better to go for overnght funds .
All the abv instruments can give 90 % collatreral margin after haircut .
Here i need your valuble opinions abt which one is better in both safety and returns aspect , and apt for pledge for collateral margins . If anything missed otherthan this please refer that also .
Thanks in advance .
( Also i read one article here that GOI bonds with 7 % returns still , but unable to find more details , if any link regarding GOI bonds please give me the link aslo , Thanks .)
Can’t really say why returns on LiquidBees are so low. Maybe due to reducing interest rates but that is just my assumption. Also you were asking about pledging, here you can find the list of MF’s and ETF’s available for pledging at Zerodha
With Bharat Bond you have duration risk. Basically, in debt, longer the maturity, higher the sensitivity to interest rates. If there is a 1% rise in interest rates, Bharat Bond 2023 will fall 3%, if there’s a 1% fall in interest rates it will gain 3%. On the other hand it’s 10% of Bharat Bond 2030 since the duration is 10 years.
Overnight funds yield lesser because they only invest in securities that mature in one day. That’s the reason for their safety and low-returns.
You need to understand the concept of duration before putting money in debt instruments - returns ins’t everything. Higher returns come with higher risks. Check this chapter n debt funds
Since Liquidbees invest in overnight instruments linked to repo rate, interest rate cuts will directly reflect in the overall returns of Liquidbees. Also dividends are subject to taxes.
In a falling interest rate scenario (where you expect further rate cuts and no sign of rising interest rates), bonds are the benefited instruments. Why? Because bonds payout fixed coupons at a fixed rate. If the prevailing interest rates are lowered, these fixed coupon rate become more attractive at present than before. So there will be higher demand for such bonds. Note than newly written bonds will incorporating the new lesser interest rate will automatically be less attractive than the existing ones.
Every instrument bears interest rate risk (including hard cash), but it stands out more in case of long term instruments.
@fno_Q I am assuming you require margin to fulfill the cash portion
You missed SGB
1.SGBs are the safest of all and better returns compared to each one say Bharat bonds / liquid bees / overnight funds
2. incase of shit happens you can exit immediately in secondary market .
3. No tax if you stay longer till maturity
4. you can transfer to near and dear if you really require cash
5. in the longer run Gold gives as much as reutruns as stock as both are inversly related as well as it is a nautral hedge to your entire portfolio
6. earn extra 2.5% over and above the gold returns - of course short term corrections no one can predict
7. even if you enter when the gold rate is very high
example : if you enter when gold is trading at 50000 , but with in a week if it falls to 45000 still you are entitled to get the 2.5% interest on the on 50k and if you wait till maturity over the course of 8 years you will earn more inform of interest
8. if you are afraid of entering 8 year lock in , go for 3-4 year lock in the secondary market so that you can exit at maturity .
In my view SGBs are best options for collateral requirements … if I am missing anything kindly other members please suggest.
a) SGB are not liquid … especially in large quantity, you will have hard time selling it at desired price, unless you are willing to sell at lower than market price.
b) Gold is typically much more volatile in short term, compared to other funds which are being discussed. In sort term SGB can also give a negative return (gold price crash) resulting in capital loss. That is rear with other debt products being discussed.