Sunday, April 17, 2016

Fixed Income Options in Falling Interest Rate Regime

Let us take a break from the normal markets this time and look at the various fixed income options available especially for the Senior Citizens. A friend of mine had this query and I realized this might be something many of us might be looking at.

1. Bank Fixed Deposits - The Rates have crashed and this becomes the most un viable option of all. The benefit of Bank Deposits is that easy liquidity is available.

2. NCDs - Many non convertible debentures are listed on the NSE and are can be bought through Open Markets. Some like L and T pay about 10.24 % twice a year. There are other NCDs also listed of less reputed players.

3. Tax Free Bonds - One should always apply for every issue and once we get proportionate allotment keep accumulating these tax free bonds. No Income Tax needs to be paid on these bonds' interest every year.

4. Debt Funds - A clear idea of good debt and income funds can be had on I can spot many funds which have consistently given returns of 8 to 10 pc per annum. Now, the catch with such funds is that one needs to hold them for 3 years to qualify as Long Term holdings. Also there is a Dividend Distribution Tax to pay. This the MF will pay on your behalf.

Now, if you go for the growth option and liquidate the gains, Short Term Capital Gain will be as per your income tax slab. This option is good for Senior Citizens who are not paying much income tax.

5. In case one is a Senior Citizen, then there is a Government of India Scheme with assured 8.6 % interest per year.

So these are the options available. The next 2 years are going to be very tough for fixed income folks and one must look at all possible options to squeeze out the last penny from our investments.

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