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FIXED INCOME SECURITIES
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BANK FIXED DEPOSITS
Subject to control by RBI
Banks free to offer varying interests
Consider the inflation rate & the Interest rate
before investing in a Fixed Deposit
Advantages of having an FD
How to Apply
Tax on Bank Fixed Deposits
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INTEREST RATES FOR
FIXED DEPOSITSDuration Interest Rate (% p.a.)
15-30 days 4-5%
30-45 days 4.25-5%
46-90 days 4.75-5.5%
91-180 days 5.5-6.5%
181-365 days 5.75-6.5%
1-2 years 6-8 %
2-3 years 6.25-8 %
3-5 years 6.75-8%
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GOVERNMENT BONDS
Issued by RBI on behalf ofGovernment
Purpose Government spending
Foreign currencies are called Euro bonds
Bonds are almost risk free
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GOVERNMENT BONDS
Categorized on basis of maturity: -
a) Government Bills/Treasury Bills less
than 1 year
b) Short Term Bonds 1 year to 10 year
c) Long Term Bonds more than 10 year
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PLAYERS IN THE
BOND MARKET
Issuers banks as well as government
Underwriters Investment banks and institution
that are leaders in investing business.
Investors Banks, Corporations and individual
investors
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FACTORS AFFECTING
BOND PRICES
Interest rate
Inflation
Financial health of the issuer
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DURATION
Macaulay Duration
Modified Duration
Effective Duration
Portfolio Duration
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HOW DO GOVERNMENT
BONDS WORK
Minimum Investment Rs. 10,000 and in
multiples of Rs. 10,000
Maturity 1 to 30 years
Acquired at par, premium or discount value
redeemed at face value
Auction carried out by RBI
Interest paid biannually or annually
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HOW DO GOVERNMENT
BONDS WORK
Investments made through primary dealers
and banks
Entire principal amount is received on
maturity date
Traded in secondary markets and thus are
liquid
Can realize profit if prevailing interest rates
falls below coupon rate after bond is issued
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RISK AND RETURNS
Returns:
CapitalG
ains when bought at discount
Capital Loss when bought at premium
Risks:
Interest Rate Risks Bonds and Interest
rates share inverse relationship
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Benefits ofGovt Bonds
a) Regulated
b) Safer than investing in stock market
c) Negligible credit risk
Dangers ofGovt Bonds
a) Fluctuation in foreign currency market (EuroBonds)
b) Inflation
c) Yield lower returns than corporate bonds or
equities
BENEFITS AND DANGERS
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TAX-FREE
INFRASTRUCTUREB
ONDS
Issued by NBFCs
Classified as Infrastructure Finance Companies byRBI and 3 Financial Institutions - IFCI, LIC &
IDFC
Tax incentive over 1 lakh available under sec 80C
However, Tax Deduction only up to Rs. 20,000
Minimum Tenure 10 years and Lock-in Period of
5 years
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MONEY MARKETS
Short and Ultra Short term instruments
Highly liquid
Safe place
Usually Large Institutions trade
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MONEY MARKET
INSTRUMENTS
Treasury Bills
ommercial aper
erti icate o eposit
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TREASURY BILLS
Short Term requirements of the Govt
Issued at a discount
No TDS
Approved for SLR
Tenure 91 days, 182 days & 364 days
Minimum Investment Rs. 25,000
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COMMERCIAL PAPER
Issued by Corporates and Financial Institutions
Unsecured
Maturity 15 days to 365 days
Issued at discount
Low cost alternative to Bank Loans
Minimum Investment Rs. 5 lacs
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CERTIFICATE OF DEPOSITS
Introduced in 1989
Issued by Scheduled Financial Banks
Unsecured
Issued at a discount
Maturity 7 days to 365 days
Minimum Investment 1 lac
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FIXED MATURITY
PLANS Close ended funds
Comes with various Maturities
Exchange Traded
No redemption before maturity
Liquidity & credit risk
Taxation
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NON CONVERTIBLE
DEB
ENTURES (NCD)
A debt instrument, like a fixed deposit (FD),
usually issued by a company
After the period gets over, you get back your
principal amount
NCDs are issued by a corporate (including
NB
FCs) with original or initial maturity up to 1year
Issued by way of private placement
NCDs cannot be converted to shares
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EMPLOYEE PROVIDENT
FUND
Both the employees and employer contribute
to the fund
The rate is 12% of the basic wages, dearness
allowance and retaining allowance, if any,
payable to employees per month.
8% Interest
Withdrawal of the amount
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POSTAL SCHEMES
5 Year Post Office Recurring Deposits
Post Office Time Deposits
Post Office Monthly Income Account
15 Year PPF Account
Kisan Vikas Patra (KVP)
National Savings Certificate (NSC)
Senior Citizen Savings Scheme
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5 YEAR POST OFFICE
RECURRING
DEPOSITS
Interest 7.5% compounded quarterly
Minimum Investment Rs. 10 per month
One withdrawal up to 50% of balance after 1
year
Investment of Rs. 10 every month Rs. 729 atthe end of 5 years
Pre-mature closure allowed after 3 years
Interest Income Taxable
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POST OFFICE TIME
DEPOSITS
Minimum Investment of Rs. 200
Investments in this Scheme qualify for the
benefit of Section 80C of the IT Act
Tenure Interest
1 Year 6.25%
2 Years 6.50%
3 Years 7.25%
5 Years 7.50%
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MONTHLY INCOME
ACCOUNT Interest 8% per annum
Rs. 80 paid every month on an investment of Rs.
12,000 Maturity 6 years
5% bonus on Maturity
Minimum Invest Rs. 1500
Maximum Investment Rs. 3 lacs for Singleaccount and 6 lacs for Joint account
Premature Encashment allowed at a discount
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15 YEARS PUBLIC
PROVIDENT FUND Interest 8% compounded annually
Minimum Investment Rs. 500 per year
Maximum Investment Rs. 70,000 per year
Deposits Qualify for deduction under section
80C
Deposits exempted from Wealth Tax
Interest earned in completely Tax Free
Loan Facility available
Withdrawal is permissible after 7th financial year
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KISAN VIKAS PATRA
(KVP)
Rate of Interest 8.4% compounded yearly
No Limit on Investments
Money Doubles in 8 Years and 7 Months
Interest Earned is taxable
Minimum Investments Rs. 100
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SENIOR CITIZENS
SAVINGS SCHEME
Interest 9% per annum
Interest paid quarterly
Minimum Investment Rs. 1000
Maturity Period 5 years
Premature closure
Account can be extended for further 3 years
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NEW PENSION SCHEME
Methodology
Authorities involved
Eligible persons
Fund deposit option
Fees & Charges Fund investment options
Risk profile investments
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DEBT FUNDS
An Investment pool
Short term as well as long term funds
Investments in debt securities
Capital preservation
Lower costs as compared to equity mutual funds
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FIXED RATE FUNDS
Investments in fixed rate securities
Fixed income & fixed maturity
Higher risk when interest rates are
volatile
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FLOATING RATE FUNDS
Investments in floating rate debt securities
Reference rate + spread
Short term as well as long term
funds/investments
Reduced risk
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Why should one look at these funds
Less volatility
When to opt for floating rate funds
Interest rates are set to rise
How to select floating rate funds
Long term floating rate funds are better
Performance
highest credit rating
low expense ratio
FLOATING RATE FUNDS
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DIVERSIFIED DEBT
FUNDS
Investments in all kinds of Debt Securities
Bonds
Corporate Debentures
Treasury Bills
Diversification results in risk reduction
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SHORT TERM DEBT
FUNDS
Three basic attributes: Liquidity, Capital
Preservation & Income
Small Allocation to Gilt
Higher to Corporate Bonds & Money Market
Instruments
Maturity of 3 - 6 months
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GILT FUNDS
Stick to high quality, low risk debt
Highly liquid
No credit risk
Vulnerable to interest rate risks
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MONEY MARKET
FUNDS
Open ended Mutual funds & short term debt
securities, relatively risk free
Objectives
High Liquidity & high quality
Types of money market funds
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INCOME FUNDS
Emphasis on regular income rather than
capital appreciation
Investments in government, corporate bonds,
money market instruments & T-Bills
Investment in medium & long term debt
instruments
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HIGH YIELD DEBT
FUNDS
Meaning
High risk, high return
Low credit rating debt instruments
Also known as JunkBond Funds
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CREDIT RATING
Criterion:
Risk Return Analysis
Mean Return and Volatility
Asset Quality
Average Maturity
Portfolio Concentration
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GROUP MEMBERS
Akshaya Gupta 4
Dhruv Almaula 5
Divesh Mehta 75
Deepa Pillai - 97
Preethi Shetty - 109
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THANK YOU!!!