Investors looking for fixed-income options in current market conditions are spoilt for choice, thanks to rising interest rates.
The public issue of NCDs from AA+ rated Shriram Transport Finance offer 9.5 per cent while fixed deposits from corporate houses such as Bajaj Finance, Mahindra Finance and DHFL offer 7.5 per cent and 8.6 per cent with lower tenures of 1 year and 2 years, respectively. FMPs from mutual funds are offering 8-8.5 per cent, while the sovereign RBI bond offers 7.75 per cent. Wealth managers believe investors whose income is not subject to tax or are in the lower tax bracket could opt for NCDs. “In an environment where rates have already risen, there is limited room for further rise and this is a nice opportunity for retail investors to lock themselves in at high rates with a creditable institution,” says Ajay Manglunia, executive vice-president, Edelweiss Financial Services.
For HNIs in the highest tax bracket, fixed maturity plan (FMPs) make more sense. You get the benefits of indexation if you hold for three years reducing tax liability significantly. If an FMP offers 8.1 per cent and inflation is 4 per cent, the post-tax return could be about 7.3 per cent compared to 6-6.2 per cent from a fixed deposit.