HNIs find a solid new wealth multiplier in state bonds

Mumbai: Rich investors with an appetite for risk and eyeing double-digit returns are buying state government bonds where they can earn as much as 9-12 per cent.Bonds of Uttar Pradesh Power Corporation (UPPCL) and AP Capital Region Development Authority (APCRDA) are actively transacted while some others like Punjab Industrial Development Corporation and West Bengal Industrial Development Finance witness small trades.“Investors can earn 400-500 basis points more than what they earn in a bank deposit and these bonds are backed by the state government which is attracting investors,” said Rupesh Bhansali, head (distribution), GEPL Capital.A sharp cut in bank deposit rates, withdrawal of the 7.75 per cent GOI bonds, collapse of perpetual bond market and Franklin Templeton winding up six debt schemes are prompting investors flock to products backed by governments. The minimum investment in these bonds is Rs 10 lakh. They can be arranged by debt market intermediaries and can be held in demat form.For example, one of the most popular, the 8.97 per cent UP Power Corporation 2023 paper with an AA (SO) rating trades at 99.65 giving investors a yield of about 9.4 per cent. The bond will have staggered repayment in four tranches of 25 per cent each. The 10.32 per cent APCRDA maturing in 2024 with an A+ rating gives a yield of 10.34 per cent.“Short tenure paper with staggered repayment terms are giving investors cash flows, making it attractive,” said Ashish Shankar, deputy managing director, Motilal Oswal Wealth Management. Shankar believes single bonds carry higher risk as compared to a mutual fund scheme that has a basket of securities and find favour with ultra HNIs who often allocate 1-5 per cent of their portfolio to such products depending on the returns and risk offered by the product.Financial advisors also caution about likely risks involved.

from Economic Times https://ift.tt/2CiNGI4