High net worth individuals (HNIs) are preferring the safety of debt markets and gold to equities, which have remained volatile for the most part of the year. Debt products such as fixed maturity plans (FMPs), corporate bonds and non-convertible debentures (NCDs) have found favour with HNIs.
Those with a short-term horizon are looking at fixed maturity plans or FMPs. These products can give returns of about 9.5% for a year with better tax benefits than fixed deposits. ?If an investor stays invested for more than a year his interest is treated as capital gains. He can choose between a flat tax of 10% or a tax of 20% after indexation for inflation,? said Anil Rego, CEO & founder of Right Horizons.
NCDs and corporate bonds are popular with long-term investors. NCDs offer an interest of 12-14% for a 2-4 year period, while AA+ corporate bonds are yielding returns of 11-12% for a similar period.
?This is a good time to invest in corporate bonds with longer maturities as the interest rates are close to their peak. As the interest rate cycle turns the bond prices will go up,? said Hrishikesh Parandekar, CEO, Karvy Private Wealth.
Though debt products are relatively risk free, investors have to be wary of the credit rating of the issuer. Debt investment also entails mark-to-market risks and so investors need to invest when the rates are high and book profits when yields fall.
According to Parandekar, NCDs that offer high yields are typically not listed and so the investor will have to be prepared to keep the money locked for 2-3 years and be willing to take the risk of a potential delay in principal repayment.
Besides debt instruments, investing in gold remains popular with HNIs despite a significant run-up in prices of the yellow metal. ?Gold ETFs is the preferred mode for investing in gold,? said Rego. Gold prices have appreciated 36% in the year to date.
And while HNIs are largely avoiding equities, a few are looking at value buys and contrarian bets, say market participants. According to Anil Rego, there are two sets of investors currently active in the market. ?One set is ready to take contrarian bets in equities, while the other group is mostly focused on fixed income products.?
?HNIs have lost some money this year but now that the market is down nearly 17% this year, some of them have started bottom fishing,? said Manish Boricha, VP-business head (PMS and HNI), Sharekhan. ?But they are avoiding complicated equity-linked structured products,? he added.