Monday, December 11, 2023

Time’s right to buy g-secs with rates near a peak

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Mumbai: Long-tenure bonds aren’t the most glamorous instruments in the investable universe. But they would offer solid returns now – at the peak of a rate-hardening cycle where inflation-adjusted guaranteed returns are positive.So, money managers believe conservative investors looking for regular income could lock into some of these bonds, which come in maturities ranging from a decade to as long as half a century.

“Long-tenure bonds are new to Indian investors and are slowly gaining acceptance as they become popular with easy accessibility,” says Jitendra Solanki, a Sebi-registered investment advisor.Government securities (GSecs) come with negligible credit risk and can now be accessed by retail investors on the RBI Retail Direct platform.

Solanki believes these bonds with high safety can be used by those close to retirement looking for peace of mind or those looking to build a regular income stream for their specially-abled child.

“Interest rates are close to a peak giving investors an opportunity to lock into high-tenure bonds. Conservative investors who want high safety with no risk to capital can buy these bonds and could stagger their purchases over the next six months,” said Vikram Dalal, founder of Synergee Capital.

Investors can now buy 10-, 20-, 30-, 40- and 50-year bonds and earn anywhere between 7.32% and 7.55% interest on them. Financial planners believe these rates are attractive as they beat inflation. There is no put or call option on these bonds and investors can earn an annual interest with no tax deduction at source. By buying bonds of different maturities and building a ladder, investors can get better cash flows and also lower their reinvestment risk.Although it is easy to buy government securities in the auction after the introduction of RBI Retail Direct, selling them in the secondary market can be a challenge, if you are holding small quantities.

Financial planners point out that some of these bonds could be illiquid for smaller lots and believe investors must not rely on easy liquidity in such products or buy them for trading.

Long-term government bonds have been bought by institutional investors such as the Employees’ Provident Fund Organisation (EPFO), insurance companies, pension funds and even charitable trusts to fulfil long-term commitments to their clients and most of them do not trade in such securities.

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