Investing with perfect compatibility
According to Warren Buffet, “Risk comes from not knowing what you’re doing". This statement can be well aligned with our investment decision while selecting a right product from multiple avenues. Selecting a right investment involves knowing the characteristic of each instrument which suits the objective of investment. Not all products possess the same traits or nature, thus it is important for an individual to examine each asset class which defines their goal & risk tolerance.
Bank Fixed Deposit:
Fixed deposits are term deposit with investment tenure ranging from six months to ten years, offering a fixed rate of returns usually disclosed upfront. It offers returns on an average at 7.5 percent or even below in some cases. The interest earned from this product will be subject to taxation. Bank also charges a penalty of 0.50-1.50% on early redemption. This investment is suited for a risk-averse investor with low expectation on returns.
Corporate Fixed Deposit:
Similar to bank FD, a deposit positioned by investors with companies for a fixed term carrying a prescribed rate of interest is called corporate fixed deposit. The tenure for the product ranges not less than 12 months and not above 5 years. It offers a higher rate of returns ranging in between 8-10 per cent. However, this deposits are unsecured and possess a higher risk. However, this risk can be mitigated by investing in companies with stable & consistent growth outlook. An investor should constantly keep updated on regulation. This product is suited for investors with short-term investment objective with certain risk appetite.
Non-Convertible Debenture:
It is a corporate bond through which companies borrow from investors for longer tenure and rewards interest for same. It generates returns at 9-12% and offers a tax-adjusted returns. This product comes with certain risk related to default on payment and liquidity issues. An investor should examine the credit rating and only invest in AAA rated or equivalent instrument, published by any independent rating agency. This product is best suited for an investor who doesn't want to beat on equity but has higher returns expectation coupled with long-term goals.
Debt Mutual Funds:
Debt mutual funds are the pool of public funds invested in high rated debt asset viz government securities, NCDs or deposits, etc… A debt fund generates returns about 9-11%. Further, debt funds are subjected to flat 20% tax after three years with indexation. Thus the returns on debt fund are adjusted in terms of inflation.
Debt funds also provide a better liquidity option. Due to the diversified portfolio, the downside risk is contained to a greater extent. This investment is suited for a risk-averse investor who seeks capital appreciation coupled with timely income.
