Bon4equi Global Consulting Private Limited, B-4076, Oberai garden Chandiwali, Andheri (E), Mumbai -400072
Bond yields are closely related to other markets. Though bond yields are significantly affected by monetary policy, the RBI's target interest rate affects the demand for Government securities (Treasury bonds). Lower interest rates will increase the demand for stocks, and higher interest rates will reduce demand. The lower the demand for stocks, the higher the interest rate. Therefore, the market’s trend in Treasury bond yields is regarded by the market as the leading indicator of RBI policy. Just as the current market estimates the possibility that the RBI will raise interest rates in advance this year, bond yields have also climbed to new yearly highs.
At the same time, bond yields can also be regarded as an indicator of investor confidence. When the stock market is in a bull market, the price of treasury bonds usually declines since investors have increased risk tolerance as they seek higher returns in stocks. Conversely, as interest rates rise, bonds are more attractive than stocks or other higher-risk investments.
In a high-inflation environment, rising yields usually lead to a decline in stock returns. However, each sector reacts differently to rising yields. For example, cyclical industries (Banks, Autos& Component, Diversified Financials, Energy, Capital Goods, Insurance, Materials, Transportation etc.) usually perform better when yields rise because this corresponds to improved economic prospects, while defensive industries (HH & Personal Products, Real Estate, Utilities, Telecom, Food & Staples retailing, Beverage & Tobacco, Pharma etc.) do the opposite.
Bon4equi Global Consulting Private Limited, B-4076, Oberai garden Chandiwali, Andheri (E), Mumbai -400072
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We provide financial planning, advice and resources that investors need. As the financial industry evolves and customer needs become more complex, we have and continue to reinvent, innovate and transform ourselves to be ready for the financial landscape of tomorrow.
Our team is led by Bhavanand Kumar Mishra who has outstanding expertise in the Bond Market, Forex. He is M.B.A, certified associate of Indian Institute of Bankers, certified treasury professional holder from IIBF, Mumbai. He has worked as Chief Dealer in almost all asset classes especially in the Fixed Income in the treasury, with twenty plus years of expertise including overseas experience at London & Birmingham in U.K. in the Punjab National Bank, which is the second largest PSU Bank in India. Mr. Mishra is supported by a team of young professionals.
The size of Indian Bond market is increasing substantially year on year basis and so the opportunity also multiplies. Indian Bond market consists of Central Government securities (G-Secs), State Development Loans (SDLs), Treasury Bills, these securities are also called as Sovereign assets classes. Particularly State Development Loans is a higher yield asset class and suitable for the retail investors. State Development Loans (SDLs) maintains 25 to 50 bps spread from the G-Secs in the respective maturities however, these spread is not sacrosanct and may vary depends on the multiple variables.
As far as Corporate Bonds are concerned, Public Sector Undertakings like PFC, REC, NABARD, NHAI, etc, Private Companies, NBFC are issuing multiple bonds round the year having different maturities. These corporate bonds carry substantial spread from the G-Sec.
Generally, before investing in Bank/Corporate Fixed Deposit, depositors compares the rate of different bank's offered rate of interest and then decides where to invest in. Generally, investors don't give importance to the fact that their deposits per bank is secured only up to INR 5 Lakh. Further, if the individual left with additional surplus money, he/she chooses to invest in the Debt MFs. In the debt MFs, there are multiple entry or/and exit load and other charges which makes their return less profitable than their direct investment in the bond. At the end of day, Fund Managers of the Debt MFs invest in the bonds only which are available in the market.
Summary - The diversification of the investment portfolio is the key to manage hard earned savings. While we don't negate the importance of Bank's Fixed Deposit, but at the same time we also don't appreciate investing all the money either in the Bank/Corporate FDs or in the MFs. In the modern era, when all the information are widely and easily available, we must change the investing habits a little bit to earn more without putting any extra effort. Interestingly, investing in the bond is quite easier than our believe as everything can be done sitting at the home.
Bonds are issued by organizations generally for a period of more than one year to raise money by borrowing. Following are the types of bonds:
In general, Bonds and Debentures are interchangeably used in conversation but they have their own definition and characteristics related to them.
Here is the list of popular Bonds and Debentures available in India.