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Hold on to your debt investment

This article was posted on Jul 29, 2009 and is filed under Press Releases

MUMBAI: RBI’s policy review spells status quo for debt investors. According to financial experts, investors can hold on to their debt investments
as the interest rates are likely to remain steady in the medium term.

They also advise investors look out for corporate deposits, which are likely to offer higher rate of return than the conventional bank fixed deposits.

‘‘The policy review was on expected lines. We weren’t expecting any change in rates,” says D Sundararajan, investment consultant, Trendy Investments. The RBI kept its key policy rates such as reverse repo, repo rate and bank rate unchanged in its policy review on Tuesday. ‘‘Since the RBI has maintained status quo, we expect interest rates to be steady for sometime. So, investors can hold on to their bond investments,” he adds.

According to financial advisors, investors would do well if they bet on liquid plus schemes and short-term debt schemes rather than long-term schemes. ‘‘Investors should stick to liquid-plus schemes. If they have a little more risk appetite and want to benefit from temporary interest rate movements, they can also bet on short-term schemes,” says Kartik Jhaveri, director, Transcend Consulting.

Sundararajan believes that investors should be better off in medium-term schemes, which has a portfolio mix of gilt and corporate bonds.

However, fixed income analysts are apprehensive about the potential of long- term debt schemes. ‘‘The government’s huge borrowing programme is a cause for concern. Though the RBI and government have promised to do their best not to disrupt the liquidity in the money market, there would be some negative impact,” says a fixed income analyst. ‘‘There is no way such a huge borrowing programme won’t impair the liquidity in the market at least temporarily,” he adds.

Financial advisors are also asking their client to watch out for corporate deposits which may offer higher rates than the bank fixed deposits. ‘‘Some companies are offering attractive rates. Shriram Transport Finance’s NCD is offering around 10.25-11.50%, says Sundararajan.

source: Ecnomictimes

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