Skip to main content

Interest in inflation- indexed bonds, but clarity needed on structure

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)
 

The prospect of good return at low risk is set to attract participation from institutional investors, including insurance companies, in inflation- indexed bonds. This new category of securities, likely to be auctioned next month, are papers which usually guarantee a return higher than the rate of inflation if held to maturity.

Investors, especially from the insurance front, are seeing good opportunity here. It will be beneficial for long- term investors. On the retail side, too, it will be ideal for people who depend on bond returns to manage expenses. However, the final verdict will be on the basis of how the market responds.

The bonds, which will protect the principal and the interest components from inflation risks, could have a fixed coupon rate and a spread ( plus or minus), depending on the bids. The interest rate will be calculated on the principal amount, adjusted to inflation. While it is expected that the bonds would be linked to the Wholesale Price Index ( WPI), with an option to redeem the bond after five to six years, insurance company officials said getting it linked to the Consumer Price Index ( CPI) could not be ruled out.

While the new securities look interesting from a market perspective, and we are looking at its prospects, we need some clarity on how the coupon rate will be calculated.

Some companies have begun brainstorming on the nitty gritty of participation in this category. The target audience for it, according to investment officers of insurance companies, would be the middle and upper middle class. Further, while some sections of the market anticipate the Reserve Bank of India ( RBI) might dictate the prices of these bonds, CIOs of life insurers maintained RBI would not interfere and prices would be determined by auctions (on price and yield).

Earlier story

Inflation- indexed bonds have been introduced earlier. Market players said these existed in the 1999- 2000 period but did not see much participation, due to low awareness. While there is a fear among a section of market participants it might meet a similar fate as floating rate bonds, others said the latter did not see much activity due to limited issuances and an unattractive benchmark.

Floating rate bonds were not very successful because the benchmark the issuers were using was very sticky and were not moving in line with the rate rise. However, he added, it was very unlikely that the CPI would be used as the index, since it is very volatile and has most of the weightage in food and fuel.

WPI depicts a wider picture of inflation. But WPI is understating the actual inflation.

Investors will be compensated for WPI inflation and this would have a market, with a fair chance of success.

For instance, if WPI is seven per cent, the rate of return could be eight per cent. Insurers said this was a better rate of return than fixed income bonds; the latter, on an average, offer a return of 7- 7.5 per cent. If linked to the CPI, the rate of returns could be much higher.

Disadvantages

However, some have a conservative view. In the institutional market, the appetite might not be great because if it was linked to inflation numbers, it is a question mark in terms of construction. There is lack of a reliable component structure for the underlying index. You are also not in a position to take a medium- term view, based on the previous month inflation numbers. Similarly, the retail participation in government securities has been very poor. I do not see a major appetite even from the retail side, unless there is a significant upward trend in inflation.

Timing- wise, it is not a right time to launch these bonds because inflation is expected to come down.

BIG BOND

|This new category of securities usually guarantees areturn higher than the rate of inflation if held to maturity |The bonds could have a fixed coupon rate |The bonds might be linked to the Wholesale Price Index |Insurance company officials say getting it linked to the Consumer Price Index cannot be ruled out

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

How Tax Deducted at Source (TDS) works?

    THE tax season is here. And if you are an employee you can't blame your employer for deducting large chunks of money from your salary towards tax deducted at source ( TDS ), which he is legally obliged to do. Your bank will also deduct some percentage from your FD interest of Rs 10,000 or more towards TDS! So what is this TDS all about? How is it computed? Are there any changes this year? Read on... What is TDS? TDS reduces your taxable income and could even provide tax relief! The TDS collections account for 40 percent of the total taxes collected in the country. As the name suggests TDS is the amount of tax that is deducted at source in certain types of income . The TDS thus collected is deposited in the Government treasury within a specified time. How is it computed? Some of the types of income where TDS is applicable include salary, interest, rental fee, interest on securities, insurance commission, dividends from shares and UTI/Mutual Funds, commission and brokerage

Modern day balanced mutual fund approach

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   In reality, most balanced funds have a strong tilt towards equity instead of a mix of equity and debt THERE are various types of mutual funds available to investors with specific features. Often investors have a particular idea about a specific type of funds in terms of their features and risks, but that is not what is actually available. Therefore, it is necessary for an investor to understand the actual position before picking up a fund. This requires some work on the part of the investor. One example can be the situation with balanced funds. Name is not representative: One of the first things that an investor has to understand is that the name of the fund is often not representative of its investment pattern. The name often represents only the aim of the fund, and not what it actually is.

ELSS Tax Saver

ELSS Stands for Equity Linked Savings Scheme.   ELSS Fund are mutual funds with 3 years of lock in period and offer income tax benefit under section 80C. They are open ended to purchase. Not all Mutual fund Investments are eligible for tax exception. List of Tax Saving Mutual Funds   Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDF

Should you invest in tax-free infra bonds?

THOSE looking to save tax should take note of the latest buzz in the debt markets. Power Finance Corporation ( PFC ) and Housing Urban Development Corporation (Hudco) have launched bonds that will help you save more tax than your regular infrastructure bonds. Soon, IRFC and NHAI are likely to follow suit with similar bonds. KP Jeewan, general manager, debt markets, Karvy Stock Broking, says: "The coupon in these bonds are completely tax-free and those in the highest tax bracket can expect an effective yield of 10.75 per cent, compared to the 9.5 per cent a 10-year public sector bond would offer." The PFC and Hudco offerings are of 10- and 15-year tenures, with coupon rates of 7.5 and 7.75 per cent, respectively. Unlike other regular tax-free infra bonds, the tax benefits in these bonds are not capped at ` 20,000. Even besides these tax free bonds, those in the highest tax bracket have had plenty of opportunities to invest in tax saving infrastructure bonds under 80 CCF i
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now