Corporate FDís/ Bonds
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Corporate Fixed Deposits
Corporate Fixed Deposits are one of the many money raising tools for Companies. Through these, Companies raise money from the public and offer a fixed rate of interest for different tenures. The amount of money which can be raised is decided by the Approving authorities.
As a part of your portfolio, Corporate Fixed Deposits provide much needed stability in returns and also reduce volatility. They best suit investors who prefer fixed returns on their investments. We offers top rated FDs with varied duration and interest rate.
Other General Features:
❯ These have periodic interest payment option (Monthly, Quarterly, Semi Annually, Annually) and Cumulative option (Compounded and paid at maturity) specific to the deposit.
❯ They offer higher rates of interest than regular bank deposits
❯ Issue is rated by Independent Rating agencies like CARE, CRISIL, ICRA etc.
❯ Some Fixed Deposits can be bought online
❯ No TDS if interest is up to Rs. 5000 in a single financial year.
Non-convertible debentures
Non-convertible debentures (NCDs) are debentures which cannot be converted into equities or shares. As the convertibility feature is not attached to these debentures, they usually carry higher interest rates than their convertible counterparts.
For those who are looking for the investment instrument that offers high returns with moderate risk and giving the flexibility of choosing between short and long tenures, NCDs might be the right choice.
An NCD can be secured or unsecured. Secured NCDs are backed by the issuer company's assets to fulfil the debt obligation unlike unsecured NCDs. The NCD issues are rated by credit rating agencies like CRISIL, ICRA, FITCH, and CARE to ensure the company's ability to service the debt on time & lower default risk.
❯ As NCDís are listed on stock exchanges, they provide liquidity to holder
❯ The tenure of NCDs can be anywhere between 2 years and 20 years
❯ NCDs are rated by rating agencies such as CRISIL, ICRA and FITCH
❯ If you buy a NCD that pays interest then the interest will not attract TDS
❯ The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest
Fixed income products such as bank/company deposits and bonds are popular with risk averse investors as they provide safety of capital with returns in the form of fixed periodic payments and the eventual return of principal at maturity.
Most investors, regardless of age should have at least a small amount of their portfolio allocated to fixed income products like bonds. This adds safety and consistency to a portfolio.
Our advisory service adopts a holistic approach to portfolio building and is qualified to advice on all major asset classes for investments.
Features of Fixed income Products
Diversification: Investment in fixed income securities counterbalances high-risk investments in a portfolio and serves to even out returns in times of volatility.
Fixed returns: They offer a potentially attractive and regular income avenue as the rate of interest is fixed (in most cases but not all) till maturity.
YTM (Yield to Maturity): By investing in bonds and holding them till redemption, you can earn maximum returns in the form of regular interest plus the face value amount on maturity.
Protect from volatility: While fixed income securities generally do not offer the high returns potential of other investments, you are spared from the volatility common in other markets as its price fluctuation is relatively lesser than equity stocks.
Liquidity: Fixed income securities provide the flexibility and liquidity required to construct a portfolio customized to your specific investment objective. If required, low-risk fixed income instruments like government bonds can be sold at short notice.
Lower Risk: Fixed income securities represent a loan from investors. As these investors are creditors to the company, in the eventuality of the company being winded down, they have priority over shareholders.
Tax Free Bonds
The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961. These bonds are generally issued by Government Backed entities and thus have very low default risk.
Other General Features are:
❯ These bonds can be applied in Physical or Dematerialized mode
❯ These bonds generally come with long tenures of 10, 15 and/or 20 years, however, these bonds can be traded on the listed exchange if applied in demat mode
❯ There is no Cap on investment made in these bonds
❯ Retail Individual Investors get higher interest rates, so for an Individual, HUF to be eligible for higher rates the maximum investment amount is Rs.10 Lakhs
❯ The interest offered is benchmarked to the Government security of similar maturity, subject to conditions laid down by CBDT.
❯ These bonds however, do not provide any additional tax benefits
Capital Gain Bonds (54EC Bonds)
According to section 54EC, any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of long term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less. Interest rate offered on these bonds is 6% per annum. The exemption is subject to:
Capital Gain Bonds are Issued by REC/NABARD. The investment is made within a period of 6 months from the date of transfer of the asset
Lock-in-period of 3 years. Maximum investment limit of up to Rs. 50 Lakhs in a Financial Year per individual
Bonds sold, transferred or converted into money or any loan or advance taken on security of such bond within a period of 3 years from the date of acquisition, the capital gains earlier exempt are taxable in the year of sale or transfer of the bonds
If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.
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