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 CHARACTERISTICS

m What is Fixed Income Securities

m Features of a Fixed Income Securities
m Wrong Perception about Fixed Income
Securities
m Investment of NRIs in Fixed Income Securities
m Most intriguing fact about Indian Investor
m Various Types of Fixed Income Securities
VANK FIXED DEPOSITS

m Subject to control by RVI

m Vanks free to offer varying interests
m Consider the inflation rate & the Interest rate
before investing in a Fixed Deposit
m Advantages of having an FD
m How to Apply
m Tax on Vank Fixed Deposits
INTEREST RATES FOR
FIXED DEPOSITS
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OVERNMENT VONDS

m Issued by RVI on behalf of overnment

m Purpose ± overnment spending

m Foreign currencies are called Euro bonds

m Vonds are almost risk free

OVERNMENT VONDS

m Categorized on basis of maturity: -

a) overnment Vills/Treasury Vills ± less

than 1 year

b) Short Term Vonds ± 1 year to 10 year

c) Long Term Vonds ± more than 10 year

 PLAYERS IN THE
VOND MARKET

m Issuers ± banks as well as government

m Underwriters ± Investment banks and institution

that are leaders in investing business.

m Investors ± Vanks, Corporations and individual

investors
FACTORS AFFECTIN
VOND PRICES

m Interest rate

m Inflation

m Financial health of the issuer

 D URATION

m Macaulay Duration

m Modified Duration

m Effective Duration

m Portfolio Duration
H OW DO  OVERNMENT
V ONDS WORK

m Minimum Investment Rs. 10,000 and in

multiples of Rs. 10,000
m Maturity ± 1 to 30 years
m Acquired at par, premium or discount value
redeemed at face value
m Auction carried out by RVI
m Interest paid biannually or annually
H OW DO  OVERNMENT
V ONDS WORK

m Investments made through primary dealers

and banks
m Entire principal amount is received on
maturity date
m Traded in secondary markets and thus are
liquid
m Can realize profit if prevailing interest rates
falls below coupon rate after bond is issued
RISK AND RETURNS

m Returns:
Capital ains when bought at discount
Capital Loss when bought at premium

m Risks:
Interest Rate Risks ± Vonds and Interest
rates share inverse relationship
VENEFITS AND DANERS

m Venefits of ovt Vonds

a) Regulated

b) Safer than investing in stock market

c) Negligible credit risk

m Dangers of ovt Vonds

a) Fluctuation in foreign currency market (Euro
Vonds)

b) Inflation

c) Yield lower returns than corporate bonds or

equities
 TAX-FREE
INFRASTRUCTURE VONDS

m Issued by NVFC¶s
m Classified as Infrastructure Finance Companies by
RVI and 3 Financial Institutions - IFCI, LIC &
IDFC
m Tax incentive over 1 lakh available under sec 80C
m However, Tax Deduction only up to Rs. 20,000
m Minimum Tenure ± 10 years and Lock-in Period of
5 years
 M ONEY MARKETS

m Short and Ultra Short term instruments

m Highly liquid

m Safe place

m Usually Large Institutions trade

 M ONEY M ARKET
I NSTRUMENTS

m Treasury Bills

m ommercial aper

m erti icate o eposit

 T REASURY V ILLS

m Short Term requirements of the ovt

m Issued at a discount
m No TDS
m Approved for SLR
m Tenure ± 91 days, 182 days & 364 days
m Minimum Investment ± Rs. 25,000
 C OMMERCIAL PAPER

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 C ERTIFICATE OF D EPOSITS

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 FIXED MATURITY
PLANS
m Close ended funds

m Comes with various Maturities

m Exchange Traded

m No redemption before maturity

m Liquidity & credit risk

m Taxation
 NON CONVERTIVLE
DEVENTURES (NCD)

m A debt instrument, like a fixed deposit (FD),

usually issued by a company
m After the period gets over, you get back your
principal amount
m NCDs are issued by a corporate (including
NVFCs) with original or initial maturity up to 1
year
m Issued by way of private placement
m NCDs cannot be converted to shares
 E MPLOYEE P ROVIDENT
F UND

m Voth the employees and employer contribute

to the fund
m The rate is 12% of the basic wages, dearness
allowance and retaining allowance, if any,
payable to employees per month.
m 8% Interest
m Withdrawal of the amount
 POSTAL SCHEMES

m 5 Year Post Office Recurring Deposits

m Post Office Time Deposits

m Post Office Monthly Income Account

m 15 Year PPF Account

m Kisan Vikas Patra (KVP)

m National Savings Certificate (NSC)

m Senior Citizen Savings Scheme

 5 YEAR POST OFFICE
RECURRIN DEPOSITS

m Interest ± 7.5% compounded quarterly

m Minimum Investment ± Rs. 10 per month
m One withdrawal up to 50% of balance after 1
year
m Investment of Rs. 10 every month ± Rs. 729 at
the end of 5 years
m Pre-mature closure allowed after 3 years
m Interest Income Taxable
 POST OFFICE TIME
DEPOSITS
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m Minimum Investment of Rs. 200

m Investments in this Scheme qualify for the
benefit of Section 80C of the IT Act
 MONTHLY INCOME
ACCOUNT
m Interest ± 8% per annum
m Rs. 80 paid every month on an investment of Rs.
12,000
m Maturity ± 6 years
m 5% bonus on Maturity
m Minimum Invest ± Rs. 1500
m Maximum Investment ± Rs. 3 lacs for Single
account and 6 lacs for Joint account
m Premature Encashment allowed at a discount
 15 YEARS PUVLIC
PROVIDENT FUND
m Interest ± 8% compounded annually
m Minimum Investment ± Rs. 500 per year
m Maximum Investment ± Rs. 70,000 per year
m Deposits Qualify for deduction under section
80C
m Deposits exempted from Wealth Tax
m Interest earned in completely Tax Free
m Loan Facility available
m Withdrawal is permissible after 7th financial year
KISAN VIKAS PATRA
(KVP)
m Rate of Interest ± 8.4% compounded yearly

m No Limit on Investments

m Money Doubles in 8 Years and 7 Months

m Interest Earned is taxable

m Minimum Investments ± Rs. 100

 NATIONAL SAVINS
CERTIFICATE (NSC)

m Interest ± 8% compounded 6 monthly but paid at

maturity
m Maturity ± 6 Years
m Deposits qualify for tax rebates under section
80C of IT Act
m Interest deemed to be re-invested also qualify
for rebate under Sec 80C
SENIOR CITIZENS
SAVINS SCHEME
m Interest ± 9% per annum

m Interest paid quarterly

m Minimum Investment ± Rs. 1000

m Maturity Period ± 5 years

m Premature closure

m Account can be extended for further 3 years

NEW PENSION SCHEME

m Methodology
m Authorities involved
m Eligible persons
m Fund deposit option
m Fees & Charges
m Fund investment options
m Risk profile investments
 DEVT FUNDS

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 F IXED RATE FUNDS

Investments in fixed rate securities

Fixed income & fixed maturity

Higher risk when interest rates are

volatile
FLOATIN RATE FUNDS

m Investments in floating rate debt securities

m Reference rate + spread

m Short term as well as long term

funds/investments

m Reduced risk
FLOATIN RATE FUNDS

m Why should one look at these funds

Less volatility

m When to opt for floating rate funds

Interest rates are set to rise

m How to select floating rate funds

Long term floating rate funds are better

Performance

highest credit rating

low expense ratio

 DIVERSIFIED DEVT
FUNDS
m Investments in all kinds of Debt Securities ±

Vonds

Corporate Debentures

Treasury Vills

m Diversification results in risk reduction

 SHORT TERM DEVT
FUNDS

m Three basic attributes: Liquidity, Capital

Preservation & Income

m Small Allocation to ilt

m Higher to Corporate Vonds & Money Market

Instruments

m Maturity of 3 - 6 months
 ILT FUNDS

m Stick to high quality, low risk debt

m Highly liquid

m No credit risk

m Vulnerable to interest rate risks

 MONEY MARKET
FUNDS

m Open ended Mutual funds & short term debt

securities, relatively risk free

m Objectives

m High Liquidity & high quality

m Types of money market funds

 INCOME FUNDS

m Emphasis on regular income rather than

capital appreciation
m Investments in government, corporate bonds,
money market instruments & T-Vills
m Investment in medium & long term debt
instruments
 HIH YIELD DEVT
FUNDS

m Meaning

m High risk, high return

m Low credit rating debt instruments

m Also known as Junk Vond Funds

 CREDIT RATIN

m Criterion:
Risk Return Analysis

Mean Return and Volatility

Asset Quality

Average Maturity

Portfolio Concentration
 ROUP MEMVERS

m Akshaya upta ± 4
m Dhruv Almaula ± 5
m Divesh Mehta ± 75
m Deepa Pillai - 97
m Preethi Shetty - 109
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