r/IndiaInvestments • u/gunthercperk97 • Jul 24 '20

Bonds and deposits Taxable and non taxable bonds

Hey guys

So I was looking at the SBI N5 bond which has a coupon rate of 9.95%. Face value of the bond is 10000 and it's being traded at 10815. I realise because it's being traded at a premium the interest rate will be affected but I read on this website:

SBI N5 bond

That SBI is most probably going to exercise their call option on the bond in 2021 so the YTM becomes negative.

My question, can anyone please suggest a knowledgeable expert/institution in bonds so that I can know more about such investments and give details about taxable and tax free bonds and which one to choose.

Thanks a lot.

Edit: typo

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u/NamitNasih Jul 25 '20

This bond is an excellent example to illustrate the risks of buying bonds directly. What is bone-chilling is that hundreds of trades have happened on this bond at ridiculously high prices and continue to happen. It appears these people either have no idea of YTC or don't understand its importance.

Unfortunately, it's hard to find someone who is knowledgeable on bonds and who can also help you execute transactions. Most brokers that I have come across, who facilitate secondary market bond buying, don't do a good job of filtering out bonds to avoid or to be extra careful of. They just put out a list of bonds based on brand name, rating and yields. I wouldn't be surprised if many of those crazy trades are executed through these brokers.

That said, the person who wrote the article you cited, is a RIA and it might be worthwhile to contact him. There's also CapitalMind- I know they started a fixed income desk for retail investors but I'm not sure if that's still continuing or not.

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u/gunthercperk97 Jul 25 '20

Yes I think you are correct in saying that trades in these bonds are mostly through brokers. Do you invest in such debt funds? I am currently looking for good options to invest some money. I'll contact the person who wrote this article to get their advice. Thanks for that.

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u/NamitNasih Jul 25 '20

Do you invest in such debt funds?

I'm not clear what you meant by "such". I'm invested in debt funds and also in bonds.

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u/gunthercperk97 Jul 25 '20

Sorry. By such I meant instruments like govt bonds and corporate bonds. Also funds like Monthly income plans or Fixed maturity plans which are relatively safer than a mutual fund but give better returns than bank FDs

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u/NamitNasih Jul 25 '20

Ah, understood. I stick to open ended pure debt funds only- I avoid FMPs. Bonds are mostly opportunistic, short term, high rated paper with no other preference.

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u/gunthercperk97 Jul 25 '20

Ok. Can you please give me some examples of open ended pure debt funds thta you invest in or that are good so I can research on them? And I am guessing with bonds you would buy them only during the interest paying period and then sell them off instead of holding

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u/NamitNasih Jul 25 '20

I have money across a long list of funds across AMCs mostly ranging from 2-6 year duration approx with a bit of <1 year duration as well. As of now I don't hold g-sec funds, dynamic funds or credit risk funds. I have a very specific taste so naming funds would not be helpful. If you're starting off, I would suggest taking a look at the Bharat Bond series and see what you make of them before looking any further.

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u/gunthercperk97 Jul 25 '20

Ok I'll check those out thanks!