Demand for corporate FDs, RBI bonds soars
- A sharp fall in stock prices due to geopolitical tensions, along with high volatility is driving retail investors.
Corporate FDs
- Several companies and NBFCs are also allowed to collect deposits for a fixed tenure at a prescribed interest rate, Such deposits are called corporate Fixed Deposits.
- It comes with the assurance of guaranteed returns and flexibility of choosing the tenure.
- Corporate FDs provide a higher interest rate than bank FDs.
- Fixed corporate deposits could give returns of 6.25-7.15%, depending on the tenure chosen and the rating of the company.
- Senior citizens get 25 bps extra.
RBI bonds
- RBI Bonds are issued by the Government of India and are eligible to be held by the citizens of the country.
- One can purchase rbi bonds through sbi and 12 nationalized banks, 4 private banks and Stock Holding Corporation of India Limited.
- Features of RBI Bonds
- The investor should be a resident of the country (India).
- The investor can be a major investing the bond in his/her name or a major investing the bond on behalf of a minor’s name.
- He/She should be able to afford the investment in individual or joint capacity.
- The investor could also be a Hindu undivided family.
- Non-Residents of India or NRIs are not eligible to invest in such bonds.
Current Scenario
- Many investors who like assured returns are buying corporate fixed deposits and floating rate bonds.
- There is a 50-60% increase in transactions in corporate deposits.
- Sharp volatility and the downward movement in the market have unnerved many investors.
- Fears of imminent rate hikes led to bond yields hardening by 60 basis points over the last one year.
- It is leading to mark-to-market losses for investors.
Solutions
- Investors must spread their investments across companies in the corporate deposit space.
- An AAA-rated company should be the priority.
- Do not invest more than 10% of your portfolio in a single company.