As soon as one starts earning, you would have heard elder family members saying that a good portion of your portfolio must be invested in FDs for Safety and Liquidity. A sign that the individual is capable of managing his finances and can save for long-term goals. While they are right about investing a portion of your portfolio into Riskless Liquid Investments- FDs might not be your best bet today.
During the 90s, the FD rates were around 13%. Hence FDs were lucrative. But since then we’ve seen a steady fall, and the current FD rates have plateaued to approximately 5.6% (for a duration between 1 year to 10 years).
Apart from failing interests, there are some other problems with FDs as well:
So, I understand but I want a Fixed Income and I don’t like Life Insurance Policies because of their complexities and Terms & Conditions, so where should I invest?
Today, it is better to invest in Bonds rather than FDs. Let me tell you why:
Bonds are considered a safe haven, but bonds do come with a couple of risks. So, now let’s talk about them.
The term “Risk in Bond Investment’’ sounds like an oxymoron. Because once we hear the word “Bonds”, what comes to our mind is: bonds are debt investments, they give fixed returns and are safe. Nevertheless, bonds do come with a couple of risks. Let’s get aware of them and learn a few simple strategies on how to mitigate them. If you are not sure of terminologies used in the Bond market you may refer our blog here - ‘The ABC of Bonds’.
In the bond market, risk of not getting interest payments/principal amount back on your investment is termed as “Credit Risk”
Credit Risk:
One of the key risks of investing in Bonds is the risk of facing non-payment of interest or principal or both by the Bond issuer. This loss to the bond buyer is called the credit risk. It can happen if the bond issuer runs into financial trouble and is incapable of paying. Hence, while picking up bonds, it is especially important to invest in entities that have sound financial performance.
Resolution for credit risk: Go for “AAA” rated bonds, these bonds are less risky than other lower-rated bonds.
Interest Rate Risk:
First and foremost, please note: Bond prices and interest rates are inversely proportional.
Interest Rate Risk is the risk of getting a lower sell price than the price at which the bondholder bought the bonds in the first place. Different factors influence Interest Rates i.e. Monetary Policy, Inflation, and the strength of the economy. If interest rates increase the price of the bond decreases. At this time if the investor wants to sell the bonds, he/she has to sell at a discount price.
However, the flip side is that, if the interest rates in the economy decrease, the selling price of bonds will increase. At such a time, an investor can make capital gains by selling his bonds at a premium to his buy price.
Example:
Let’s assume you are holding bonds issued by XYZ company at a purchase price of 100. At this time, the interest rates in the market are 7%.
Case 1: Now if interest rates increase to 8 %, bond price will fall in the market, to say 99. Then if you sell the bonds, you will lose ₹ 1 per bond.
Case 2: If the interest rate falls to 6%, then the bond price can increase to, say ₹ 101. Then if you sell the bonds, you will earn capital gains of ₹ 1 per bond.
Liquidity Risk:
Liquidity is the ease of selling off a bond in the market and getting cash in return. This risk of monetary loss due to a smaller number of buyers/ low demand for a given security is termed as Liquidity Risk.
Note: Liquidity risk arises only when you want to sell off the bond before it matures. Factors that influence liquidity risk are:
One major factor that triggers liquidity risk is ‘Lack of information’ on the demand side. When a seller is unaware of the number of buyers looking to buy bonds, we can say he is unaware of demand and may develop a misconception of low demand. He then agrees to sell the bonds at a discount price.
Way out: Innovation in technology can mitigate this liquidity risk. For Listed Bonds one can check the last traded price by searching the ISIN of the bond over BSE/NSE’s Website and for unlisted bonds, websites like ours can connect buyers and sellers.
So, I want to invest in a bond instrument.
I don’t like the low interest rates of FDs.
But I don’t want to take unnecessary risk.
What should I do?
Buy a Bond and use the Hold to Maturity Strategy (HTM). If you plan to hold bonds till maturity, Liquidity risk and Interest rate risk will not come into picture. Liquidity risk can be handled efficiently with the help of the latest connective technological innovations and players like we ourselves. So here, if you hold the bonds till maturity the only risk you take is Credit Risk i.e. If the issuer is financially sound and makes payments on time, you will get your money back on maturity.
Upgrade to fixed income investments with Richfield Fintech. Held exclusively by Banks, Corporates, HNIs and other large financial institutions up until now, we’ve opened up the fixed income investment market to individual investors like you.
| TYPE OF SECURITY | HOLDING PERIOD TO QUALIFY AS A LONG-TERM ASSET | TAXABILITY OF SHORT-TERM CAPITAL GAINS | TAXABILITY OF LONG-TERM CAPITAL GAINS |
| Listed debentures and bonds * | More than 12 months | Gains shall be taxed as per normal slab rates | Gains shall be taxed @ 10% without indexation |
| Unlisted debentures and bonds * | More than 36 months | Gains shall be taxed as per normal slab rates | Gains shall be taxed @ 20% with indexation |
Shriram Transport Finance Company Limited (STFC) was established in 1979 and has a long track record of over three decades in the commercial vehicle financing industry in India.
| Total Annual Revenue | FY 19: ₹15,529 crores |
| Year of Inception | 1979 |
| Industry | NBFC Retail |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Umesh G. Revankar |
One of the earliest banks in South India - came into being in 1929 during the Swadeshi movement.
1st among the private sector banks in Kerala to become a scheduled bank in 1946.
Pan-India presence over 30 States/Union Territories through network of 857 branches, 53 Extension Counters, 1,407 ATMs and 7,855 employees.
High constitution of NRI deposits of over 27% of the total deposits and CASA of 24.3%.
1st bank in the private sector in India to open a currency chest on behalf of the RBI in April 1992.
1st private sector bank to open a NRI branch in November 1992.
1st private sector bank to start an Industrial Finance Branch in March 1993.
3rd largest branch network among Private Sector banks in India, with all its branches under Core Banking System.
Strong Capital Build-up - IPO in October 1998, rights issue in September 2004, follow on public offering in FY 2005-06, QIP in FY 2007-08, bonus shares in FY 2008-09, QIP in FY 2012-13, rights issue in FY 2016-17.
As on 31-Dec-2018, paid up equity share capital stood at Rs. 180.97 crores and Share Premium at Rs. 1,553.39 crores.
As on 31-Dec-2018, the Bank had Deposits of Rs. 77,665 crores, Advances of Rs. 60,064 crores and Investments of Rs. 18,926 crores.
| Total Annual Revenue | FY 18: ₹6,193 crores |
| Year of Inception | 1929 |
| Industry | Private Sector Bank |
| Head Office | Thrissur |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | V.G. Mathew |
IndusInd Bank was founded on 17 April, 1994, in Mumbai by Mr. S.P. Hinduja (chairman of the Hinduja Group).
The Bank started their operations with a capital amount of Rs 1,000 million among which Rs.400 million was raised by the Non-Resident Indians.
Its primary objective at the time of establishment was to serve the Non-Resident Indian (NRI) community.
Its products and services include:
Awards:
| Total Annual Revenue | FY 18: ₹17,281 crores |
| Year of Inception | 1994 |
| Industry | Private Sector Bank |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Sumant Kathpalia |
One such Bank - Karur Vysya Bank - was set up in Karur in 1916 by two great visionaries and illustrious sons of Karur, the Late Shri M A Venkatarama Chettiar and the Late Shri Athi Krishna Chettiar to provide financial support to the traders and agriculturists in and around Karur, a textile town in Tamil Nadu.
The bank has grown from strength to strength to emerge as one of the leading banks in the country. The bank is professionally managed by the Board of Directors who, with their vision, experience, knowledge and business acumen guide the bank.
The Bank has spread its wings across the country with 782 branches in 20 States and 3 Union Territories.
In 2003, the bank was rated seventh in the study of top 50 banks in India, conducted by Business Standard.
KVB has consistently maintained strong fundamentals, generating profits and rewarding its stakeholders with handsome dividends since inception. The Bank meticulously conforms to all the prudential norms and exacting statutory regulations.
As on 31-Dec-2018, the Bank had Deposits of Rs. 58,624 crores, Advances of Rs. 47,766 crores and Investments of Rs. 16,205 crores.
| Total Annual Revenue | FY 18: ₹5,700 crores |
| Year of Inception | 1916 |
| Industry | Private Sector Bank |
| Head Office | Karur |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | P.R. Seshadri |
PNB is India's first swadeshi bank that started operations in 1895 and was established as the first bank purely managed by Indians with Indian capital. The bank enjoys a steady growth and customer base, with domestic business crossing a milestone of 10 lakh crores and 62% of its branches in rural and semi-urban areas.
Punjab National Bank is currently focusing on a transformational exercise for Business Excellence to enhance Efficiency, Productivity, and Profitability for long-term sustenance and giving the Bank an edge over its competitors.
Branches: 6,937 branches and 10681 ATMs across 764 cities.
| Total Annual Revenue | FY 18: ₹47,996 crores |
| Year of Inception | 1895 |
| Industry | Private Sector Bank |
| Head Office | New Delhi |
| Ownership | N/A |
| Type of Issuer | PSU |
| Business Sector | N/A |
| Current MD/CEO | Sunil Mehta |
Cholamandalam Investment and Finance Company Limited (Chola) was incorporated in 1978 as the financial services arm of the Indian conglomerate Murugappa Group. The current Chairman is Mr. M. B. N. Rao.
The Murugappa Group was founded in 1900. The group owns several businesses in areas such as Bicycles, General Insurance, Fertilizers, Abrasives, Automotive chains, Car Door Frames among others.
Chola offers financial services such as:
Subsidiaries of Chola include:
Number of Branches: 858 across India
Customer Base: 8,00,000+
Number of Employees: 32,000
Total Assets: ₹30,721 Cr* (as of March, 2017)
| Total Annual Revenue | FY 18: ₹5,425 crores |
| Year of Inception | 1978 |
| Industry | NBFC Retail |
| Head Office | Chennai |
| Ownership | N/A |
| Type of Issuer | PSU |
| Business Sector | N/A |
| Current MD/CEO | N Srinivasan |
PNB Housing Finance Limited is a subsidiary of Punjab National Bank. Punjab National Bank is the second-largest Public Sector Bank in India with its asset more than 77 thousand crores.
PNB - HFLs AUM (Asset Under Management) is more than 60 thousand crores. Products: Home Loans, Home Improvement Loans, Home Construction Loans, Plot Loans, Home Extension Loans, Land Loans, Loan Against Property, Lease Rental Discounting, Fixed Deposits.
Promoters of the company hold 76% of shares, and the company and public own 24 % of shares.
PNB - HFL operates in 60 locations, with 84 branches. The top credit rating companies in India have assigned A grade or above to most of the securities issued by PNB - HFL.
| Total Annual Revenue | FY 18: ₹7,481 crores |
| Year of Inception | 1988 |
| Industry | PSU |
| Head Office | New Delhi |
| Ownership | N/A |
| Type of Issuer | PSU |
| Business Sector | N/A |
| Current MD/CEO | Neeraj Vyas |
Bank of Baroda (BOB) is an Indian state-owned banking and financial services company founded by Maharaja Sayajirao Gaekwad III on 20 July, 1908 in Vadodara, Gujarat.
It was one of the 14 banks to be nationalized on 19 July, 1969, designated as a profit-making public sector undertaking (PSU).
The Government of India holds 64.03% of total shares in the bank.
Its financial products include:
Over the years, BOB has merged with as many as 10 banks.
Number of Branches: 5,558 (Including 107 overseas branches)
Number of Employees: 52,420*
Total Assets: Rs. 694,875.42 Crores*
*As of 2017
Awards:
| Total Annual Revenue | FY 18: ₹52,906 crores |
| Year of Inception | 1908 |
| Industry | Public Sector Bank |
| Head Office | Vadodara |
| Ownership | N/A |
| Type of Issuer | PSU |
| Business Sector | N/A |
| Current MD/CEO | P.S. Jayakumar |
State Bank of India (SBI) is an Indian multinational, public sector banking and financial services company.
It traces its establishment to the Bank of Calcutta founded on 2-June, 1806, through the Imperial Bank of India, making it the oldest commercial bank in the Indian subcontinent.
The Government of India holds 57.46% of total shares in the bank.
On 1-April, 2017, it merged with five of its associate banks, namely: State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore; along with the Bharatiya Mahila Bank, to record the first ever large-scale consolidation in the Indian Banking Industry.
Due to the merger, it became one of the 50 largest banks in the world.
Number of Employees: 2,09,567*
Number of Branches: 24,000+
*Based on data as of 2017
Awards:
| Total Annual Revenue | FY 18: ₹2,28,970 crores |
| Year of Inception | 1921 |
| Industry | Public Sector Bank |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | PSU |
| Business Sector | N/A |
| Current MD/CEO | Rajnish Kumar |
Currently the third largest bank in India, Axis Bank offers the entire spectrum of financial services to customer segments covering Large and Mid-Corporates, MSME, Agriculture and Retail Businesses. Axis Bank is one of the first new generation private sector banks to have begun operations in 1994. Today, the company has operations spread across 10 international offices and 2900 branches in India and focuses on corporate lending, trade finance, investment banking and others in the international market.
Chairman: Shri S. Vishvanathan
2,900 branches
| Total Annual Revenue | ₹54,986 crores |
| Year of Inception | 1993 |
| Industry | Private Sector Bank |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Amitabh Chaudhry |
Mahindra & Mahindra Financial Services Ltd was founded in the year 1991 and it is headquartered in Mumbai. It is an NBFC specialized in vehicle finance. Its parent company is Mahindra & Mahindra an Indian MNC leading manufacturer of cars and tractors.
Financial services offered by Mahindra & Mahindra are the financing of passenger vehicles, utility vehicles, tractors, commercial vehicles, construction equipment, and pre-owned vehicles and SME finance. SME finance includes project finance, equipment finance, working capital finance, and bill discounting services to SMEs.
It takes pride in setting up 1,300 offices, serving more than 3 lakh customers, and employment to more than 35,000 people. Mahindra & Mahindra FSLs AUM (Asset under Management) has been more than ₹65 thousand crores.
| Total Annual Revenue | ₹10,429 crores |
| Year of Inception | 1991 |
| Industry | NBFC Retail |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | C B Bhave |
| Total Annual Revenue | ₹17,384 crores |
| Year of Inception | 1987 |
| Industry | NBFC Retail |
| Head Office | Pune |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Sanjiv Bajaj |
Manappuram Finance being an NBFC, has its existence since 1949 as a pawnbroker in Valapad (Thrissur District, Kerala). Late V.C. Padmanabhans father of current MD and CEO Shri. V.P. Nandakumar. Manappuram Finance Limited was incorporated in the year 1992. Today Maappuram Finance Limited has made a presence in 28 states in India and operates via more than 4000 branches. More than 27000 employees are associated with Manappuram Finance.
Manappuram Finance is specialized in Online Gold Loan, Gold Loan, Forex & Money transfer, SMS Finance, Commercial Vehicle loan.
In the fiscal year 2018-19, its earned a profit of 920 crores (Profit after Tax) and the profit Y-o-Y.
Manappuram Finance is not only a business pioneer but also a socially responsible organization; hence it has established the Manappuram Foundation and Manappuram Academy to fulfill the educational and medical needs of society.
| Total Annual Revenue | ₹4,116 crores |
| Year of Inception | 1949 |
| Industry | NBFC Retail |
| Head Office | Thrissur |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | V.P. Nandakumar |
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its group companies.
In 2014, it was the second largest bank in India in terms of assets and third in term of market capitalization. ICICI Bank has received the Best Retail Bank in India’ award at the Asian Banker International Excellence in Retail Financial Services Awards 2016, winning this award three years in a row.
ICICI Bank has 4,867 Branches and 14,367 ATMs across India.
| Total Annual Revenue | ₹62,162 crores |
| Year of Inception | 1994 |
| Industry | Private Sector Bank |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Sandeep Bakhshi |
HDFC Limited and Standard Life Aberdeen jointly established HDFC Life Insurance Company Limited in 2000. HDFC Limited is a housing finance institution, and Standard Life Aberdeen is a global investment company. HDFC Limited was founded in 1977 by Hasmukhbhai Parekh. More than 2500 employees work in HDFC Limited, and the total asset value is around ₹729,814.93 crore (2020).
HDFC Life Insurance has set up 420 branches to meet the needs such as Protection, Pension, Savings, Investment, Annuity, and Health. HDFC Pension Management Company Ltd. is a wholly-owned subsidiary of HDFC Insurance established in 2012 to operate a pension scheme. In 2016, the first international wholly-owned subsidiary was established in the UAE, known as HDFC International Life and Re Company Ltd.
| Total Annual Revenue | ₹29,729 crores |
| Year of Inception | 2000 |
| Industry | Corporate |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Vibha Padalkar |
Piramal Enterprises Limited is the biggest company in the Piramal Group. Earlier it was known as Piramal Healthcare, and in the year 2012, it was renamed as Piramal Enterprises Limited. It has made its presence in the Financial Services and Pharmaceuticals.
PEL provides financing solutions in wholesale and retail funding opportunities across sectors such as real estate and infrastructure, renewable energy, hospitality, logistics, industrials, auto components, etc. The Pharma division of PEL has manufacturing units in 14 countries and distribution across 100 countries. In the financial year 2020, PELs consolidated revenue was more than ₹12,000 crore.
| Total Annual Revenue | ₹13,068 crores |
| Year of Inception | 1984 |
| Industry | Corporate |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Ajay Piramal |
Housing Development Financial Corporation (HDFC) Bank Limited is an Indian banking and financial services company founded on August 1994 in Mumbai, Maharashtra.
It is the largest private sector bank in India by market capitalization.
It has taken significant strides in involving technology in the banking industry. One such example is Project AI, where the bank intends to deploy robots in select branches to assist customers with services such as: Cash Withdrawal/Deposit, Forex, Fixed Deposits and Demat Services.
Awards:
| Total Annual Revenue | ₹80,241 crores |
| Year of Inception | 1994 |
| Industry | Private Sector Bank |
| Head Office | Mumbai |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Sashidhar Jagdishan |
Indian Oil Corporation Limited is a PSU company, 52% of its stake is owned by the Government of India. It was founded in 1959; it is headquartered in New Delhi. Its major products are Petroleum, Natural gas, Petrochemicals, and it is serving in India, Sri Lanka, the Middle East, and Mauritius. More than 30,000 employees are working in Indian Oil Corporation Limited.
For two consecutive years, i.e., 2017 and 2018 Indian Oil Corporation Limited became the most profitable state-owned company in India. It is ready to launch Bharat Stage VI fuels in all its retail outlets in Telangana. Shrikant Madhav Vaidya is the present Chairman of Indian Oil Corporation Limited.
| Total Annual Revenue | ₹5,76,588.94 crores |
| Year of Inception | 1959 |
| Industry | PSU |
| Head Office | New Delhi |
| Ownership | N/A |
| Type of Issuer | Corporate |
| Business Sector | N/A |
| Current MD/CEO | Shrikant Madhav Vaidya |
