Letting money lie idly in my savings account fetches me 3-4% while FDs are highly inconvenient and rigid. What are some good fixed-income alternatives if I want to:
Bonds and Debentures are excellent fixed income investment options. In most cases they are far better than Bank FDs. Here is why -*
i. FDs give returns of upto 7% max across all tenures. When you invest in Bonds, the fixed returns can go from 8% (safest) to as high as 12% (little risk exposure - for long tenures ).*
ii. The level of safety built into Bonds by design are way higher than Bank FDs. Take the case of a Bank Bond vs the same Bank’s FD. In the utterly low probable case of bank getting liquidated, its always the Bond holders who will be the first people to get back their principal amount. For FD holders, only upto 1 lac across all FDs of that holder in that bank are insured (as per RBI mandate).*
iii. Bonds give regular payouts on scheduled dates , till they mature. So you are actually getting money into your account. This ensures the advantage of regular cash infows.*
For your short term investment , you can consider the following Bonds/Debenture :
Altico Capital , Coupon Rate = 10.50%, Yield to Maturity = 9.9% approx. , Maturity = 29-Jun-2020, Credit Rating = AA- INDIA Ratings, Interest Payment (IP) Date = 29 Jun every year till 2020,
Debt Type = Senior Debt, Secured
For long term investment , you can consider the following Debenture :
South Indian Bank, Coupon Rate = 11.75%, Yield to Maturity = 11.72% approx. , Call = 26-Jun-2024, Credit Rating = A+ CARE Ratings, Interest Payment (IP) Date = 26th Sept and 26th Mar every year
Debt Type = Tier II Capital Adequacy, unsecured
*For more such options on Bonds and Debentures, you can check out www.goldenpi.com
You can invest in them through GoldenPi easily.
You can go for NCDS and even gold bonds. They are seems to be safer and giving high returns. The best option is to invest in the name of family members. I have read many comments about the same on the portal investorq.com
Given the recent IL&FS bust up and crisis in DHFL, how can investors monitor the risks in companies? Does tracking the financials of the companies help in sidestepping IL&FS like situations at the extreme?
Hi Rahul,
Yes, you are right in pointing out that tracking key financial parameters for a company does help in evading financial pitfalls like ILFS and DHFL. For example, if we scrutinize 3 key params for ILFS, we will clearly see that the numbers were in the red. Alas, most people do not have the luxury to do such analysis all the time as they are complex and expensive to do!
Lets look at the params for ILFS Engineering & Co. (one of the rogue companies that defaulted)-
Interest coverage ratio (ICR) -
2016 : -0.41 , 2017 : 0.85 , 2018 : 0.95
Industry Benchmark :
Debt to Earnings Ratio -
2016 : -58.05, 2017 : 12.95, 2018 : 12.58
Industry Benchmark :
4 <= Debt to EBITDA <= 5 : Considered a high value and is seen as a red flag that causes concern for rating agencies, investors, creditors, and analysts. Note that ILFS numbers are deep down in red here!
Current Ratio -
2016 : 1.84, 2017 : 1.56, 2018 : 1.49
Industry Benchmark :
CR < = 1 : Means company’s assets are not enough to pay for its current liabilities. For this param, ILFS has fair values.
Clearly 2 out of 3 vital params for this entity was in deep red for the past 3 years. Rest is history.
I’m not sure if you would get accurate company data in india to do a proper analysis. We all know the companies which have defaulted were rated high based on such nos…I heard that Altman’s Z-score is a far better measure to assess company’s health & had even predicted downfall for the companies which had defaulted.
So these large corporations like ILFS have to mandatorily publish their data. From what we have observed in the various rating reports and after talking to a few of them, they follow well beyond financial numbers. Like the number of projects in pipeline, in execution, past history of the company, management structure and also the potential position of the entity in the Indian market (which is a bias). On top of this , there was this strong belief factor that a financial behemoth that was born out of Government entities in 1987 can never default. The aggregate of these factors is used to do the final rating.
True , Altman Z score is a good measure of an entity’s default probability and is very commonly used by all credit rating companies.
Have you considered to invest in some fixed deposits…abroad ? What do you say about that ? If you can show the legality of your money as a foreigner you can make a fixed deposit in some countries like 15% after taxes in local currency. How does that sounds ?
Just wondering which are those countries where one can make 15% in fds? also one has to consider currency risks, sovereign risks, I believe.