I liked edelweiss platform for initial screening of securities but not ventured into NCD investing as I was skeptical about liquidity and impact cost during exits. Let me know if you have invested and key aspects you need to be aware of
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Small financial banks are providing interest rates up to 9.25% for senior citizen. Which will be higher than any liquid fund at the moment in the period of 365-727 days. I was checking for my dad to park his funds from surrendering of large cap equity mutual fund.The interest will be paid quarterly.
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It might be a Cumulative one where Interest and Principal are paid on maturity.
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I scraped all bonds, combined the info with Zerodha instrument which is listed on BSE. Please download excel from here if anyone is interested.
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Whats the best way to park funds for short term say 1-6 months in NCD’s (looking for better returns than Bees after transaction costs and taxes). What parameters should we look out for so we can get max returns for 1 to 6 months. Does buying NCDs with lesser residual maturity a better option here?
I am a beginner in bonds scene, went through this thread, @kb_snn - Portfolio Analysis - Shailesh and few others like where discussions are mostly around debt/fixed income instruments.
To summarise my learning, in theory I would park my fixed income part of capital allocation in tax free bonds when available and for such duration when it is not available, buy AAA bonds/papers from good corporates and may be government securities.
However, I could not make an investment decision because 1) no more tax free bonds could be found 2) Post IL&FS and Essel fiascos funds investing in corporate bonds/debt funds seem riskier but I think it may be better than before because of the heightened awareness but still don’t know new exposures has any effect on NAV value due to past realisation of credit risk 3) don’t know if I can sell the bonds if I need to sell before maturity in the secondary market (I assume I should be able to) and there would be sufficient liquidity to avoid capital loss 4) GILT funds appear to be a dumb decision at this point based on @Yogesh_s asia index chart of returns on government securities because they are hottest at this time and there may not be much returns from now on 5) Looked at data shared by @deepender I don’t believe I know enough (and don’t have time and would take the option if I can get a fund to do it for a fee) to trade bonds in secondary market yet.
I would really love some direction and appreciate if the learned and experienced folks here can reply and guide.
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Fixed income investment - how much to invest and where to invest depends upon what role you want Fixed income to play in overall portfolio / financial plan .
No one strategy works . Questions that are imp
- Current source of income - How stable & predictable they are …
- What is your saving % ( of your income )
- What is your immediate , short term ( 3-5 years ) and long term ( 10 -20 ) financial goals are
- What is your assessment on return expectation / risk profile for your investments
Thank you Shailesh for replying, let me answer your questions first.
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Current source of income - How stable & predictable they are …
Income is 95% salary, I consider it to be stable 5% could be dividends and returns from equities. -
What is your saving % ( of your income )
about 40% -
What is your immediate , short term ( 3-5 years ) and long term ( 10 -20 ) financial goals are?
Short term ie 5 year goal is to get closer to completion of building a performing equity portfolio, no immediate need for funds . Medium term 5 - 10 years to fund child’s education expenses and remaining to a retirement corpus that will support a reasonable and comfortable lifestyle. -
What is your assessment on return expectation / risk profile for your investments
Equity I tend to expect about 10 - 15% CAGR and I do like to take calculated risk and debt side I think 7-10% pre tax returns are good, I would not want to lose capital due to credit risk here.
I predominantly invests in equities when I find companies at reasonable or slightly above comfortable valuations. I also tend to not pump more money when markets are super hot. I am trying to build a debt allocation that will help me to park funds when I don’t find opportunities. Although I did not make a capital allocation model as crystal clear as yours that is tied to Nifty valuation, the mental model is something like that but I got to write it down sometime. I have couple of RE investments from the past which I am trying exit at the most opportune time.
@zygo23554 had posted earlier in this thread highlighting differences and expected returns in this thread which is very handy in choosing the right kind of fund. However, I am not quite sure the defaults and realised credit risks affect new investments into any of these.
I also liked the quasi bonds idea you shared in your PF thread and am thinking at an appropriate time I should execute on it. I am not certain if this is right time due to the uncertainty.
I think I managed to write down and share the questions I have in mind but not sure how useful it is for others who are reading it. Also, I am concerned if I am shifting this discussion off the track.
thanks in advance
-binu
Great …
Since your 95% of income is stable and predictable + your have 40% saving rate + you have no immediate need for money that means you can choose risker option for investing which gives higher return
I would suggest
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80% of Pf should be equity through SIP route in Good Equity Mutual funds or ETF ( this will give > 12% return on long term basis ) . I would advise against direct equity investing as it is more time consuming and since your return expectation are modest you can easily achieve it through MF / ETF route with less effort + get good night sleep .
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For rest 20% : After exhausting PPF , EPF route … rest in liquid funds of HDFC / Kotak etc ( this can be converted to cash fast typically within 1 working day and also has much lower credit risk
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Thank you Shailesh, appreciate your guidance here. However, I enjoy reading and researching businesses and investing into equities gives me the purpose. I agree a debt exposure of ~20% will bring more balance to my investments.
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Can you explain more from your experience on what signals to look. How are these yield curve and credit spreads help here.
My experience & conclusions haven’t been an extremely reliable indicator so far, at best I have a strike rate that is 5-10% higher than the usual 50%.
This is best explained with some examples -
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Market peak in 2008 - We have equities making new highs at a dizzying pace, market was up almost 50% in 8 months. Bond yield was at 10 year lows though we were in a rate hike cycle then and the INR had appreciated to 40 against the USD. You could see that all three markets were flashing signs that India was a screaming buy - consensus buy
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The market bottom in August 2013 - Post the taper tantrum in a matter of 30-40 days we say bond yields go past 9% (the highest they have been for some time), INR depreciate past 60 to the USD and NIFTY falling to a low of around 5600. All three market flashing signs that India was a consensus sell
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Market bottom in Feb 2016 - Commodity crash took the NIFTY to 6900 on budget day while bonds and INR cracked too in a 15-20 day period. The reversal from this bottom was fast after the ferocious fall in the last leg
The key point to look for is resonance across all three markets which tell you the same thing. You can observe this in global markets too on specific event days, examples being -
How does one apply this framework?
One should apply this only when you see singe sided moves who are reflecting across all markets. Betting against the market once you see the signs of abject capitulation can work out to be very profitable - usually though buying a call/put option. In such a scenario writing options is too risky since one mistake can sink you, while buying an option keeps downside limited but gives you 3-4 times the payoff if you get it right.
How do credit spreads tie in?
Credit spread is an indicator of how easy it is for corporates to raise money from bond markets. If credit spreads (over G-sec of same tenor) are way lower than historical, one can see that financial stocks take a hammering since money is stock in trade for them. Throughout the run of 2017 credit spreads kept narrowing while equity markets kept going higher, till the trend no longer held good. From mid 2018 onward you can see that credit spreads widened and NBFC stocks started taking a hammering, no one could raise money other than HDFC Ltd and Bajaj Finance - those two stocks are standing tall amid the ruins.
Implications
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Do not use this framework with a predictive mindset, will never work out. Always use reading from markets to read what the mood of the overall capital market segment is and then place bets/allocate capital accordingly. More like a reverse DCF approach than a DCF approach
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I find it very perplexing that equity investors in financials do not have much of a clue about how bond markets work. Unless one has the network and resources to track how the company is being perceived and treated by the bond markets, one should not fool himself into thinking he/she understands banks.
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Any crisis starts in some other asset class and then equity markets calibrate. 2008 was a credit crisis, 2013 was a central bank/sovereign bond event, 2016 was driven by fall in commodities. If bond/FX markets are telling you something else, chances of them being right is more rather than equity markets being right
In short this is a very complicated framework where by definition your strike will not be high - this is why macro economists usually get it wrong. More the number of variables involved, higher the range of outcomes and lesser the signal/noise ratio.
Some day when I finally have the inclination and bandwidth to trade options, I will further work on this framework. For the time being I just use this exercise as a barometer to get a pulse of what the markets in general are discounting and pricing in
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How much post tax annual return is correct to expect from the overall Fixed income part of our portfolio? Thanks
I am again quoting what I said earlier .
Fixed income Risk - Return strategy depends upon what role you want Fixed income to play in your portfolio
In my case since I am full time investor -
I have different strategy - I am more concern with return of capital in case of Fixed incomes rather than return - while in equity I am ok to take more risk for return …
Earlier I used to use Liquid funds ( for liquidity to invest in equity ) + Gilt / Taxfree bonds
Now as Interest rates are coming down - I have moved to Quasi Bonds ( pl read Portfolio Shailesh ) in place of Gilts
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@zygo23554, @Yogesh_s, Any website where do you see credit spreads. Do share link. Also any bond specific website experience bond investors follow for Indian markets?
@all, @Yogesh_s, @zygo23554
Also, what does it mean by buying a debt MF? For eg, https://www.moneycontrol.com/mutual-funds/franklin-india-ultra-short-bond-fund-super-institutional-plan/portfolio-overview/MTE188 if I buy this with 500 rupees at NAV they are going to buy all these bonds from open market ? What If they are not able to buy because of liquidity issues (or bond being not listed, and not available in their 10% buffer). If the yields shrink before I purchase my returns diminish. Am I right?
Recently going across debt mutual fund portfolios. I see they just mentioned the portfolio but not the coupon of each instrument (bond/cd) held? Even the website has no brochures detailing the coupon rates. Did some one face this. I am looking at “L&T Triple Ace Bond Fund”
Thanks. What about CD and CP, https://www.valueresearchonline.com/funds/portfoliovr.asp?schemecode=16748.
https://www.valueresearchonline.com/funds/portfoliovr.asp?schemecode=16748
Whats the interest rate for commercial paper and certificate of deposit. How to get them
I presume you are in US. So what exactly are you looking for? Do you want to invest in debt MF or invest directly in bonds? If debt MF, I would suggest to visit freefincal.com and go through the many articles written about debt MF. If directly in bonds like NCDs, CP etc. I have no idea about all the coupon rates, Value Research provides the details for some, and does not provide for some. I invest in debt MF, so I would not go deep w.r.t to the rate.
5 days back, Franklin India LD fund was down 1.98% in a day due to essel infra knock off as said.
Do you see any chances of NAV recovering that fall, as the fund house seems confident and does not intend to sell the pledged shares? does someone has any idea?
thinking of exiting from this…but if there is chances of NAV recovering, then can wait for a while