Riskier bonds find takers in new debt mutual fund tax regime
bonds. Many of these instruments are yielding double-digit returns in the range of 10% to 15% depending on the credit profile, but investment advisors warn such papers carry elevated risks that require careful vetting.
These bonds are mostly offered by non-bank finance companies (NBFCs), small finance banks, fintech companies and microfinance lenders among others. Their tenure is mostly one to five years and are available on online platforms such as Indiabonds, BondsIndia, GoldenPi, Wint Wealth, Bonds Kart, Grip Invest and Leaf Round.
For now, these products are trending among traditional yield-chasers. These bonds yield about 300-500 basis higher than conventional products, like bank deposits and postal savings. The trigger for their growing popularity among individuals in the highest tax bracket has been the recent changes in the taxation of debt mutual funds. In an unexpected move, the government said from April 1 capital gains arising from investments made in debt mutual fund schemes would be added to taxable income and taxed in line with the income tax slab rate. As a result, the indexation benefit in debt mutual funds that lowered the tax outgo for investments held for more than three years went.
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In the absence of tax benefits in debt MFs, investors are chasing returns from other riskier fixed income products.
A two-year bank deposit with SBI or the Post Office, earns 7%, while a Navi Finserv NCD maturing in October 2025 yields 10.8%. NCDs of Fincare Small Finance Bank maturing in February 2029 yield 11.45%.
Financial planners typically believe investors should use a core and satellite approach to investing in
