If you can do without liquidity till maturity, there are some good fixed income investment schemes. Choose the one which best fits your needs.
By Joydeep Sen
There are three basic tenets of an investment, with the acronym ‘SLR’. It stands for safety, liquidity and returns. People, however, look at investment options in the reverse order, i.e., returns, liquidity and then safety. There are certain options that are safe and returns are attractive in the current interest rate scenario, but you may have to sacrifice liquidity in the interim, till maturity. Let’s look at these.
7.75% Government of India Savings Bonds
These bonds, officially called 7.75% Savings (Taxable) Bonds, 2018, is of the best credit profile. Though taxable, 7.75% is a decent return in the current scenario when the RBI repo rate is 5.4% and bank deposit rates are on the way down. However, these bonds are not tradable in the secondary market and are not eligible as collateral for availing loans from banks, financial institutions and non-banking financial companies (NBFCs). It means, once you purchase, you are stuck with it till maturity, which is seven years from date of issue. There are certain early exit clauses, like exit after six years or five years, but only for senior citizens above a defined age bracket.
Sovereign Gold Bonds (SGB)
SGBs have a maturity of eight years, with exit option from the fifth year. These are not illiquid per se, as SGBs are listed at NSE / BSE. However, if the prevailing price at the Exchange is at a discount to face value or at a price not reflecting the price appreciation in gold, then you have to make a price sacrifice in selling the bonds. In Gold ETFs, liquidity is better, costs are lower, but ETFs do not carry an interest of 2.5% as in case of SGBs.
Post Office Schemes
There are various post office schemes such as National Savings Certificate with a maturity of five years, Kisan Vikas Patra with a maturity of nine years five months, Sukanya Samriddhi for the girl child up to an age of 18-21 years, etc. All these schemes have attractive returns but liquidity is limited, depending on the Scheme.
Bonds / debentures
Secondary market liquidity for bonds / debentures, particularly the ones rated below AAA, is limited for retail investors. It means, you may have to suffer a price sacrifice while selling. Primary issuance purchases can be made for an amount that suits your wallet. Returns depend on bond market conditions at that point of time; normally, when inflation is on the higher side, bond interest rate or returns tend to be higher.
G-Secs through NSE goBID app
This app enables you to invest in government securities, which is the best credit available, through your regular demat account, i.e., without opening a CSGL account, at lot sizes suitable for your wallet. Otherwise, the secondary market for government securities is wholesale. Here again, secondary market liquidity, if you want to dispose prior to maturity of the security in a retail lot size, is limited.
The common aspect of all the avenues discussed above is that with varying degrees of sacrifice of interim liquidity, the options are otherwise decent. When you do your financial planning, you would be chalking out your financial goals, which would be with an indicative timeframe. For financial goals that are some distance away, you can sacrifice liquidity in the interim period and avail of the attractive returns. For shorter horizons or for deployments that may require liquidity, there are suitable options—mutual fund schemes, bank deposits, etc.
The investment options discussed above aresity yields better returns. In this article, we have discussed allocation of the debt component of your portfolio. In debt, it is possible to match the maturity of your investment to that of your financial goal, which is known as ‘laddering’.
The writer is founder, Wiseinvestor.in