DEBT ASSET CLASS

Debt is an asset class with popular avenues of debt investments through Fixed Deposits of banks & corporates and bonds issued by governments,RBI.It offers a wide variety of products to suit every need and risk profile of the customer and is relatively less risky asset class and returns are generally in form of interest payments and/or capital gains due to impact of interest rates changes over time.

Corporate Deposits are loan arrangements where a specific amount of funds is placed on deposit under the name of the account holder. The money placed on deposit earns a fixed rate of interest, according to the terms and conditions that govern the account. The actual amount of the fixed rate can be influenced by such factors at the type of currency involved in the deposit, the duration set in place for the deposit, and the location where the deposit is made.

Corporate Deposit

Corporate Fixed Deposits are parallel to Banking FD’s, except that the money invested is with a company and not with a bank. Deposits under Corporate FD’s are governed by the Indian Companies Act 1956 under Section 58A.However, these deposits are unsheltered. Therefore, if the company defaults, the investor cannot sell the company to recover his/her capital. Contrary to this, corporate FD’s apart from giving a superior interest rate than banks, also provide investors with a short-term deposit option with only a six month lock in period as well as the benefit of having no income tax deducted at source if the interest income is up to Rs 5,000 in one financial year. Investments can also be spread in more than one company, so that interest from one company does not exceed Rs 5,000.

Benefits of investing in Company Fixed Deposits

  • High interest.
  • Short-term deposits.
  • Lock-in period is only 6 months.
  • No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year
  • Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000
The deposits should be spread over a large number of companies engaged in different industries. This way, you'll be able to diversify your risk among various industries/companies. Try not to put more than 10% of your total investments in one particular company.
Ideally, the investment should be for 1 to 3 years depending upon the rate of interest.
The performance of the companies should be reviewed at maturity. This will help you decide whether to renew or reshuffle the deposit. It is also wise to keep a track of these companies by checking their share prices, annual reports and other details reported in newspapers.

These precautionary reviews and steps will be taken on your behalf by GIIS Financial to ensure great returns with low risks.

These are closed ended debt schemes with a fixed maturity date and they invest in debt & money market instruments maturing on or before the date of the maturity of the scheme.

Fixed Maturity Plan

Why FMP

FMPs, are the equivalent of a fixed deposit in a bank, with a little difference. The FMP's returns are only indicated and not 'guaranteed', Since the fund house knows the interest rate that it will earn on its investments, it can provide 'indicative returns' to investors.FMPs are debt schemes, where the corpus is invested in fixed-income securities.

Where do FMP's invest ?

FMPs usually invest in certificate of deposits (CDs), commercial papers (CPs), money market instruments, corporate bonds and sometimes even in bank fixed deposits. Depending on the tenure of the FMP, the fund manager invests in a combination of the above-mentioned instruments of similar maturity. Say if the FMP is for a year, then the fund manager invests in paper maturing in one year.

Tenure of FMPs'

TThe tenure can be of different maturities, from one month to three years. They are closed-ended in nature, which means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment.

These FMP NFOs are generally open for 2 to 3 days and are marketed to corporates and well-heeled, high net-worth individuals. Nevertheless, the minimum investment is usually Rs 5,000 and so a retail investor can comfortably invest too.

FMP's are investment options for sure if you want to park your money for short term. They are more tax efficient and give better post-tax returns. Though returns are not 100% guaranteed, they are almost risk free (remember almost).

These bonds are exemted fro income tax and have attractive intrest rate. Since compnay have better credit rating they have better safety on returns, also option of holding bonds in "Demat Form" makes your investment easy to handle and monitor.

Bond

1. Zero Corporate Bond

A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.

2. G.SEC Bond

A government security (G-Sec) is a tradeable instrument issued by the central government or state governments. It acknowledges the government’s debt obligations.

3. Corporate Bond

A corporate bond is a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations.

4. Inflation Linked Bond

Inflation-linked bonds, or ILBs, are securities designed to help protect investors from inflation. Primarily issued by sovereign governments,that are indexed to inflation so that the principal and interest payments rise and fall with the rate of inflation.

5. Sovereign gold Bond and gold ETF

Sovereign Gold Bonds (SGBs) are a kind of Government bonds that are issued by the RBI on behalf of the Government on payment of rupees but denominated in grams of gold. The value of these bonds is tied to the value of gold. On redemption, the investor gets interest income and the prevailing price of gold.

6. Capital gain saving Bond

Capital gains bonds or 54EC bonds, are one of the best way to save long-term capital gain tax. 54EC bonds are specifically meant for investors earning long-term capital gains and would like tax exemption on these gains.

7. Tax saving Bond

Tax-saving bonds are great instruments offered by the government to help people save tax. These are special documents which offer tax benefits to the owners as permitted under the Income Tax Act.

A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.

Debenture

Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these type of debts

A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note.

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital. Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.

There are two types of debentures:

  1. Convertible debentures, which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. "Convertibility" is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert, convertible bonds typically have lower interest rates than non-convertible corporate bonds.
  2. Non-convertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them. As a result, they usually carry higher interest rates than their convertible counterparts.
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