How to invest in debt

How to invest in debt

Debt: the word itself conjures up the image of a moneylender standing on the doorstep waiting for his money. However, debt is not always bad. You may have heard of people ‘being in debt’ but what about ‘investing in debt’? When you make a debt investment, you loan the money to a corporate or the government. In return, you receive returns in the form of interest. If you are interested in tax-efficient steady returns and safety of principal, then debt funds are ideal for you.
Here are five different types of funds that you can include in your portfolio:

1) Bonds

Bonds are debt securities issued by government entities and corporate houses. These entities raise money for financial purposes, which include funding investments and enhanced cash flow. When you purchase bonds as investment, you receive a regular income through interest payments. At the end of the maturity period, you receive the original investment made. There are different types of bonds such as government bonds, corporate bonds, high-yield bonds, international bonds and so on.

2) Public provident fund

The Public Provident Fund, or the PPF, has been a popular debt-oriented investment for for the past many decades. This scheme is backed by the government of India and offers a high degree of protection on the principal as well as interest. As an investor, you are guaranteed a fixed return each year. The current rate of interest on PPF is fixed at 7.6% per annum .

PPF is a 15-year scheme. At the time of maturity, you have the option to extend the plan indefinitely in blocks of five years. The investments you make under PPF are eligible for a tax deduction of Rs 1.5 lakh under Section 80C of the Income Tax Act. In addition, the interest you earn is not taxable.

3) National Saving Certificate
National Saving Certificate (NSC) is a savings bond offered by the Indian government. It is one of the safest investment avenues in the country. It is available at all post offices and investors can invest for up to 10 years in this scheme. Currently, the interest rate on NSC investments is 7.8% per annum*. It is popularly used as a tax-saving instrument by government employees, salaried individuals and businessmen.

Further benefits include:
a) Tax deductions are applicable under Section 80C of the IT Act.
b) No upper limit on how much you can invest
c) You can get loans from banks by offering certificates as collateral

4) Gilt funds
Gilt funds are mutual funds that allow you to invest in government bonds and securities. These funds carry zero default risk and they are considered to be very safe. These funds invest in debt that is of low risk and high quality. And while the returns can be moderate, the invested capital is safeguarded against risk. That’s why these funds are suitable for beginners or those who are risk averse.

5) Debt mutual funds
Debt mutual funds are different from gilt funds as they invest in a mix of securities such as corporate bonds, money market instruments, treasury bills and government securities. Compared to gilt funds, the risk is higher but they offer high returns too. If you are interested in earning a steady income during uncertain interest rate movements, you can invest in fixed maturity plans (FMPs). These are close ended debt funds with a fixed maturity date.

Most people think of equities when it comes to investments. However, investments in debt can be a great way to balance your portfolio and to earn steady returns.



Disclaimer:  Investment in securities market are subject to market risks, read all the related documents carefully before investing.


How to buy stocks

The two biggest stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Together, there are more than 6,000 companies listed on their platforms. With literally thousands of options in front of you, it can be tough to pick the right stocks for your portfolio. In other words, where do you even begin? Here are some tips that can help you make the right investment decisions. 1) Familiar with a particular sector? Start thereIt is always good to know how a company or a sector functions before you invest. For example, if you are in the healthcare industry, you might already have useful knowledge about how pharmaceutical companies function. You can utilise this knowledge for your investment gains. Beyond that, you can start investing in companies with business models that are easy to understand. Even the great investment guru Warren Buffett says that he does not invest in companies and industries that he does not understand. 2) Check the financial healthGo through the financial records of the company to find out its financial health. Take a look at the company’s track record regarding revenues and profits. There are three important financial statements you should read and understand before investing in a company. They are: These three statements paint a financial portrait of the company. By reading these statements, you can get an idea if a company is profitable or not. And while the profitability of the company is important, it is also necessary to see what the debt situation is. It may not be a good sign if a company has large amounts of debt when compared to its competitors. 3) What is the stake of promoters?Promoters are individuals or organisations who are generally the biggest shareholders in a company. In many cases, these promoters have key executive roles in the company. That’s why keeping tabs on their investment holdings can offer clues regarding the future prospects of a company. So when promoters increase their shares, it is taken as a good sign for the company. 4) Looking for a regular income: dividends are your answerMost people invest in the stock market for two reasons: steady income at the present or high returns in the future. If you are interested in a regular income, then it is best to invest in stocks that offer dividends. Blue chip companies that have reached the maturity stage of the growth cycle tend to offer good dividends to its investors. By investing in such companies, you can earn steady returns to finance your current needs. 5) Long-term investmentsThe stock market is an ideal investment avenue if you want to invest for the long term. Warren Buffett once said: “If you aren’t willing to own a stock for ten years, don’t even think of owning it for ten minutes.” Look out for stocks that have high growth potential in the next five to 10 years. For example, if a company reinvests its profits back into the business, it is an indication that the company has good growth potential. This way, the company positions itself for long-term growth and success in the market. By investing in such stocks for the long term, it is possible to create a big corpus for your future goals such as buying a house or retirement planning. ConclusionBuying stocks is a science as well as an art. With more experience in the stock market, you can become a better investor. But to reach that state, you need to put in time and effort to learn and understand the different aspects of the stock market.     Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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How to Invest in Derivatives

Futures, options and derivatives: Watch any movie about the financial markets and you are bound to hear these words. Traders in good looking suits rush around the trading floor spouting these terms at the top of their voices. It all sounds rather important and complicated. But what are these words exactly? And how do you invest in derivatives? Let’s find out.What are derivatives?Derivatives are financial contracts between investors. They derive their value from another asset such as stocks, bonds or other commodities. That’s why they are known as ‘derivatives’. Based on the change in price of the underlying asset, the price of the derivative is determined.How to trade in derivatives?Future contracts and options are two of the most common types of derivatives. Here is how you can invest or trade in these avenues.Futures contractsAs the name suggests, a futures contract is a contract between two investors to conduct the sale of an asset for a specific price and a pre-determined point of time in the future.Here is how a futures contract takes place. Imagine there are two investors: Santosh and Meera.Santosh has 100 shares of company X. The value of each share at the moment is Rs 50.Santosh wants to sell the shares after six months. However, he fears that the market could take a downturn by then. He wants to ensure that he gets a good return on the sale of his stocks.He tells his broker to find a buyer for his shares.Meera is an investor who wishes to buy the shares of company X. She is confident that the market is poised for a boom in six months. She decides to enter a futures contract with Santosh.As per the contract, she is willing to buy 100 shares of company X at Rs 80 per share after six months.In reality, two things could happen: the market could go up as Meera expects or go down as Santosh expects.Scenario #1 Imagine the market goes up. The stock price of company X rises to Rs 120 per share.This means that Meera earns a profit of Rs 50/share. As for Santosh, it doesn’t really matter whether the market goes up or down because he has already booked his profits at Rs 30 per share.Scenario #2Imagine the market goes down. Let’s assume the prices of company X falls to Rs 20 per share.This means Meera makes a loss of Rs 30 per share.Stop lossIn order to avoid such losses, Meera could instruct her broker to create a stop loss. For example, if she creates a stop loss at Rs 40, the broker immediately sells her shares when the stock hits the specified price.In this way, Meera can ensure that her losses are minimized.OptionsAn option is like a futures contract. Here too, two investors enter into an agreement to trade a security at a particular price on a pre-determined date in the future. But in the case of options, the buyer or seller is not obligated to go through with the transaction. He has the ‘option’ to conduct the transaction. This allows the investor to gain a leveraged position on the stock while at the same time he can avoid the risk of a total purchase. Options are commonly used by traders to hedge their positions in the market.ConclusionDerivatives offer investors the opportunity to hedge their bets in the market and maximize their returns. If you have the appetite for some risk and if you possess an understanding of the Indian markets, investing through derivatives can be largely beneficial. And the next time you hear someone talking about derivatives on the TV, you know exactly what they are talking about.       Disclaimer:  Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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  • IPO Process - 5 Steps for Successful Listing in India

    The last two years have proven to be very fruitful for the IPO (Initial Public Offer) market. Investors have cashed in the opportunity and made huge returns in the IPO. The journey of the company to offer its shares to the public is exciting and at the same time, it also offers an opportunity to the investors to reap the benefits of IPO. Seeing the performance of recent IPOs, the attention of investors towards it is at an all-time high and they are always on a lookout for the new opportunities to arrive. When a private company decides to go public, the initial public offering process starts. The companies go public to raise a huge amount of capital in the exchange of securities. An IPO is an important stage for the growth of any company because they have access to public capital which enhances their credibility and exposure. The initial public offering process in India is regulated by the ‘Securities and Exchange Board of India (SEBI). In this article, you will learn about 5 steps of the IPO process for a successful listing on the Indian stock exchange. IPO Process in India Step 1: Selection of an Investment Banker for Underwriting Process Before understanding the IPO process, let us understand what underwriting is. Underwriting is a process in which the shares of the companies are issued and sold during the initial public offering. During this process investment bank advices and gives suggestions to the company against a fee. The investment banker understands the financial situation of the company and accordingly suggests them plans to meet their financial needs. They sign an underwriting agreement with the company. The agreement has all the details about the deal and the amount that will be raised by issuing securities. The companies may select an investment bank after determining various factors such as the reputation of the bank, expertise in the process, quality of their equity research and experience in the sector they deal. All these factors help in selling the IPO to the investors, traders and retailers. Step 2: Due Diligence and Regulation Process After the selection of the investment banker, the company is required to make an initial registration statement as per the regulations of the SEBI. In this process, the company and the underwriters submit the SEBI its fiscal data and the future plans of the company. The company is also required to give the declaration about the usage of funds that will be raised from IPO procedure. This declaration ensures that the company has given each and every disclosure that an investor must know. The company must file various versions of the prospectus from the initial stage to the final stage with the investors. The prospectus consists of the company’s details like valuation of the company, risk and rewards of the investment along with other details. This IPO process ends with the filing of the above-mentioned documents. Step 3: Pricing The final price of the Initial Public Offering is determined by the investors. The investment bank markets the IPO. To attract the public to the IPO application process, they are priced at a discount. By issuing shares at discount, the share performs well when they are listed on the stock exchanges. The price of the stock during IPO procedure can be a fixed price with the price mentioned in the order document. On the other hand, a book building issue will have a price band within the bids that can be made by the investor. Step 4: Stock Listing and Price Stabilization When the shares of the company are listed on the stock exchange and trading begins, the investment bank takes measures to establish the price of the securities. When there are not enough buyers, the bank will purchase the shares. The role of the investment bank in stabilizing the share price is essential. However, one must remember that such buying would last only for a short period of time because the IPO process already consumes a huge amount of capital investment. Step 5: Transition to Market Competition When the company's transition period to the normal competitive environment is over, the company is required to make disclosures like its financial results, significant news, etc. that is material in nature and can affect the price of the shares. The role of the investment bank is still significant. It can continue as an advisor to the company and assist in increasing the price of the shares over a period of time.   Conclusion The above mentioned are the IPO process steps for a successful listing. An IPO can change the fortunes of the company and it can grow at a rapid pace. Apart from the company, investors can also reap the benefits of an IPO by investing in them. Since there are many risks and uncertainties associated with a company going public, good research before investment can be fruitful. The investors can compare the company with its peers and check its fundamentals before investing. An investor must also consider his risk appetite and availability of funds before investing money in the IPOs. If you are an investor and need any assistance regarding investing in the stock market, you can contact IndiaNivesh.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • IPO Allotment Status – All you need to know about IPO Allotment Process

    Initial Public Offerings have been in existence for a long time. But recently they have come under a lot of limelight. In the July-September period of last year, funds to the tune of USD 0.86 billion were raised from just 10 IPOs. And as per an EY report, IPOs are expected to gain more momentum in 2020. IPOs or Initial Public Offer are the buzzwords these days. Especially after the successful ones like IRCTC and Ujjivan Bank. Indian stock exchanges (BSE & NSE) ranked 6th worldwide in the highest number of IPOs in Quarter 3 of 2019. Read on to understand the IPO Allotment process in detail. Important aspects of bidding in an IPO Before we move to the allotment, we should know some important basics about IPO bidding. These days, most IPOs take the book building route. Some important terms to be aware of: Price Band Each IPO involves a price band. It is a price range within which applicants can make their IPO bids. The upper limit (or maximum price) is s the cap price. The lower limit of the price band is the floor price. The final issues price (known as the cut-off price) is decided based on the bids received.   Lots The total shares (on offer in the IPO) are divided into small lots. Each applicant needs to bid in these lots and not for individual shares. For instance, if a company intends to issue 1 lakh shares and the lot size is 20 shares per lot. Hence, the total number of lots on offer is 5,000. As per the SEBI guidelines, applicants cannot bid for shares quantity which is lower than the lot size. Also, bidding for lots in decimals (such as 1.5 lots) is not permitted. It is important to note that the lot size is applicable only at the stage of IPO allotment. Post listing, investors can trade their shares in the market in whatever quantity they want. ASBA ASBA stands for Application Supported by Blocked Amount. This facility lets you bid in IPOs without paying any money upfront. The amount remains blocked in the bank account and is deducted only after the allotment. IPO Allotment process Share allotment in an IPO needs to be done as per the SEBI guidelines. With the changes introduced by the regulator in 2012, all RII (Retail Institutional Investors) applications need to be treated equally. Some important points about IPO Allotment process: Only bids which are equal to or higher than the issue price qualify for allotment. Retail applicants (with qualified bids) need to be allotted the minimum application size, subject to stock availability in the aggregate. Apart from retail investors, there are two other types of investors in an IPO – QIB (Qualified Institutional Buyers) and NII (Non-Institutional Investors). Allotment to them is done on a proportionate basis. Post submission of all the bids, a computerised application is used to eliminate all invalid bids. This helps to identify the number of successful bids. There can be two situations –Under subscription (number of applications received is lesser than the total lot of shares offered) and Oversubscription (number of applications received is higher than the total lot of shares on offer). Allotment Rules for over and under subscription In case of an under subscription, every investor gets full allotment, regardless of the application size. For retail investors, in case of an IPO oversubscription, the max number of retail applicants eligible for allotment of the minimum bid lot is determined by using this formula – Total no. of shares available for RII (Retail Individual Investors) divided by Minimum Bid Lot. If the IPO is oversubscribed by a huge margin, the final allotment is done through a computerised lottery method. This would mean that some applicants will not get any allotment. If the oversubscription is not by a huge margin, then all applicants will get the minimum bid lot and the balance is proportionality allotted to applicants who had bid for multiple lots.   IPO Allotment Status IPO Allotment Status of each applicant gives the details regarding the number of shares applied for and final allocation in the IPO. The IPO status details are available online on the website of the registrar. Each IPO has a specific registrar such as Karvy, Linkintime, etc. Applicants can check their IPO allotment status by providing details such as PAN, IPO application number, etc. IPO Allotment Status Online is available within one week of the IPO closing date. The entire allocation process takes almost 10 business days. In the case of non-allotment within that period, the amount paid by the applicant is refunded back. The registrar also publishes an allotment document which has all the details regarding the IPO allotment such as the total number of applications received, IPO allotment calculations, etc.   Why were shares not allotted to you in the IPO? There can be three reasons for this. Invalid Bid Bids in an IPO can be rejected or considered invalid for numerous reasons. Some of these are invalid Demat or PAN details, incomplete information, multiple applications by the same person, etc.   Over Subscription Oversubscription means that the demand for the company’s shares exceeds the number of shares issued. In case of a hugely oversubscribed IPO, the shares are allotted based on a lottery. The rationale being that every applicant has an equal chance. If your name does not come up in the lucky draw, you will not be allotted the shares.   Bid Price is below the issue price IPOs following the book building route requires applicants to bid for lots as well as the price they are willing to pay. If the bid price you have submitted is less than the final issue price, you will not get any IPO allotments.   If you want to stay on top of the IPO game, a financial expert can be of great help. A partner like IndiaNivesh, who has more than 11 years of experience in the Indian markets, can keep you informed about all the upcoming IPOs and help you make the most of it.  Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • Tax Saving FD – Know About Tax Saving Fixed Deposit

    Every salaried individual as well as a business person is required to pay taxes as per the income tax laws. While paying taxes, we all aim to legally save it in some way or the other. But how do we do that? It is the most confusing question for most of the taxpayers. One of the excellent ways of saving taxes is by investing in tax-saving investment schemes. They not only help you save taxes but are also instrumental in effectively achieving your financial goals. There are many investment avenues available in the market that either offer tax exemption or tax deduction. Having said that, selecting the most suitable and right tax-saving investments may not come easy for everyone. While choosing the right scheme, one needs to access several factors such as safety, returns and liquidity, among other things. A very popular tax-saving investment option among taxpayers is investments under section 80C. As per section 80C of the Income Tax Act, 1961, investments of up to Rs. 1.5 lakhs can be claimed as a deduction. Tax saving fixed deposit is a type of fixed deposit where you can get a deduction of maximum Rs. 1.5 lakhs under section 80C. To arrive at the net taxable income, the amount invested in tax saving FD is to be deducted from gross total income. Let us learn about some of the important points that you must consider before investing in tax saving FD. Things to Know About Tax Saving Fixed Deposit Investment in tax saving FD can be done by individuals and Hindu Undivided Family (HUF) only. The minimum amount for fixed deposits varies from bank to bank. Income tax saving FD has a lock-in period of 5 years. You cannot make premature withdrawals and loans against these FDs. Investment in these FDs can be made only through private or public sector banks. Rural and co-operative banks are not eligible for these FDs. Tax-saving fixed deposits can be held in ‘singly' or 'jointly'. When the holding is in joint mode, the tax benefit is available to the first holder. Tax saving FD interest rates vary from bank to bank. The interest rate ranges from 5.5% – 7.75%. However, note that some banks offer higher rates on FDs to the senior citizens. These fixed deposits have nomination facilities. The interest earned on the income tax saving FD is taxable according to the investor’s tax bracket. The interest on tax saving FD is payable on a monthly or quarterly basis. The main advantage of investing in tax saving fixed deposits is that they are less risky in comparison to equities. Since many banks offer this type of FD, let us learn about its details. Banks and Income Tax Saving FDs SBI Tax Saving FD Tax saving FD interest rates of SBI is 6.25% for general customers and 6.75% for senior citizens. The maximum deposit in a year is Rs. 1 lakh and the minimum deposit is Rs. 1,000. By using a tax saving FD calculator you can know the amount receivable after the lock-in period of 5 years depending on the maturity period of your FD.   HDFC Bank Tax Saving FD Tax saving FD in the HDFC Bank can be opened with a minimum amount of Rs. 100. The maturity period of this FD is 10 years. Tax saving FD interest rates is 6.30%. Senior citizens get an added benefit of 50 basis points over general customers.   ICICI Bank Tax Saving FD The interest rate on tax saving fixed deposits at the ICICI Bank to the general customers is 6.6% and for senior citizens, the interest rate is 7.10%. These rates are applicable to FDs having a maturity period of 5 to 10 years. The maximum amount that can be deposited is Rs. 1.5 lakhs and the minimum amount for opening tax saving FD at the ICICI Bank is Rs. 10,000.   PNB Tax Saving FD Punjab National Bank offers an interest rate of 6.30% on a five-year tax saving FD. The minimum amount for opening tax saving FD at the PNB Bank is Rs. 5,000.   Bank of Baroda Tax Saving FD Bank of Baroda offers an interest rate of 6.30% on a five-year tax saving FD.   The Bottom Line The above mentioned are the basic details about the major banks that offer income tax saving FDs. You may access each individual option carefully and select the suitable one after doing good research. You can find all the basic information on the bank’s website. If you want to find out the returns that you will be earning from the fixed deposit, you can access the tax saving FD calculator and find out the returns by entering your fixed deposit details. If you want to learn more about income tax saving FD or want to learn about other investment options, you can contact IndiaNivesh. We are among one of the most trusted and value-enhancing financial groups in India.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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