Friday, May 11, 2012

Is This The Right Time To Invest In Debt Instruments?

Debt Instruments have been one of the staple investment options for Indians over the past decade. Though the number of people and the amount of investments going into the Stock Markets in India has gone up consistently over the past few years, exposure to Debt Instruments has always been steady. At the end of the day "Safety of the Invested Money" is one of the most important requirements for us Indians per say when we make any sort of investment.

In this post, we are going to take a look at two important reasons that make these Debt or Fixed Income Instruments very attractive.

Reason No. 1 - Carnage in the Indian Stock Markets

This is probably the most obvious reason for this suggestion. The Indian Markets have been very volatile over the past few months and the past few days have been especially worse. The Market has gone down by an average of around 100 points or more on a daily basis. This week alone it has gone down by around 400+ points. In this Volatility, Investing in the Stock Markets is a risky affiar and hence, going for Fixed Income Instruments like Fixed Deposits, Bonds etc would be a wise decision.

Reason No. 2 - Rising Interest Rates in India

The Interest Rate Market in India, for Fixed Income Instruments like Bonds & Deposits is one of the highest in the World. A Majority of the fixed income investment options available in India have hiked their rate of interest making these products all the more attractive for Investors. Look at the table below: This is the Rate of Interest Comparison of some of the Most Prominent Fixed Income Investment Options available in India over the past couple of years.

Investment Opption Rate of Interest in 2011 Rate of Interest now in 2012
5 year NSC 8.4% 8.6%
10 year NSC 8.7% 8.9%
PPF 8.6% 8.8%
5 year SCSS 9% 9.3%
5 year RD's 8.2% 8.5%
1 year FD's 8% 8.5%

Note: Rate of Interest for RD's & FD's is the Industry Average. Private Banks are offering an average of around 0.5% to 1% than their Public Sector counterparts.

In the above table:

NSC - National Savings Certificate
PPF - Public Provident Fund
SCSS - Senior Citizens Savings Scheme
RD - Recurring Deposit
FD - Fixed Deposit

As you can see, Debt or Fixed Income Instruments are giving us absolutely awesome returns and the best part is, these returns are guaranteed. So, at the current market scenario, I dont think we can get any investment that would be better than this...

Some Last Words:

If you think that this 8% or 9% Rate of Interest is less, just remember that India has one of the highest rate of Interests on Debt Instruments. Do you know what is the average rate of interest on Savings Accounts in Countries like USA or Singapore? It is less than 0.5% per annum. What about Fixed Deposits? It is in the 2% to 3% range. Now, go back and re-think if the Rate of Interest we earn on our deposits is less...

On the other side, Loans in India are one of the costliest. In Developed Nations, loans are atleast 50% cheaper than in India. Anyways, this isnt the topic of our discussion.

So, Happy Investing in Debt Instruments!!!


  1. nice opinion.. thanks for sharing.

  2. Dear Anand, your answers have been so helpful. And you've sat through all the comments and replied to each one of them with patience. I just wanted to thank you from all of you. Great job mate. Cheers.

  3. I want to do fixed deposit in post office and I drop a cheque in post office on 26 april, on 4th of may I got a msg from SBI ,3.5 lacs r debited in my A/ banking SBI also showing the cheque clearance n debited.But still post office didn't receive.How long the processing time.

    1. Post office is not like a bank where transactions happen at the same speed. It usually takes 2-3 extra days for cheques given or received by the post office to be fully processed.


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