DEBT

INVESTMENTS

22P009 Animesh Verma

22P056 Vanshika Tantia
22P152 Nidhi Nain
22P158 Richa Alexander
22P159 Sahil Bhatnagar
 Content
01 FDs

02 Bonds

03 Mutual funds

04 MLDs

05 REITs

06 InvITs
FD 01
Assured Return:
Unlike market-linked securities,
there is no losses due to market
volatility and investments remain
safe.

A fixed deposit (FD) is a tenured

deposit account provided by banks
or non-bank financial institutions, Liquidity:
offering investors a specified Premature withdrawal of FD is
interest rate until the given permitted, although one will lose 02
maturity date. some interest.

Compounding:
In this investment one can earn
03 interest on interest, thereby
enjoying higher returns and faster
multiplication of money.

Convenience:
They have a very easy process of
application available both online
and offline with low minimum
04
investment.

Taxation:
A TDS of 10% is deducted by the

05 bank and the remaining % as per

income tax slab is charged on
interest earned.
 Types:

Standard Term Deposits

Flexi FD cumulative vs
Senior Citizens FDs
FD for NRIs non cumulative
Tax Saving FD
Corporate FDs fds
Reccuring Deposit

For general For Senior

Bank
Citizens Citizens Generally
higher returns
RBL 3.5-7.8% 4-8.3%
than savings
IDFC 3.5-7.5% 4-8% A/c

Canara 4-7.25% 4-7.75%

Bank of
3-7.05% 3.5-7.75% Suitable for
Baroda
short-term
Kotak goals
2.75% 7.25%
Mahindra

Axis 3.5-7.1% 3.5-7.85%

HDFC 3-7.25% 3.5-7.75% Balances

Portfolio
SBI 3-7.1% 3.5-7.6%
Bonds Issuer:
Could be government or
01 corporates according to which
the bonds are rated by credit
rating agencies.

A bond is a type of security under

which the issuer owes the holder a
debt and is obliged – depending on Tenure:
the terms – to provide cash flow to Financial and legal obligations of
the creditor. the issuer is applicable only until 02
the tenure’s end.

Pricing:
The price of a bond is inversely
03 related to the market interest
rates. This creates volatility in
the bond market.

Coupon Rate:
If the bond is held till maturity
then the pre-specified coupon
rates if any is received on time
04
with some credit risk.

Tradablility:
Most bonds are tradable in the

05 secondary market which causes

ownership to shift within a given
tenure
 Types
Type Description
Accrue consistent coupon rates
Fixed-interest Bonds
irrespective of market conditions
Coupon Rates are subject to market
Floating-interest Bonds
fluctuations and thus inconsistent
Special debt instruments to curb impact
Inflation-linked Bonds of inflation on face value and interest
return
No maturity period for investments and
the issuer does not return the principle
Perpetual Bonds
amount. The investor benefits from
steady interest payments in perpetuity
Advantages
Stability - accrue comparatively
assured returns in a low-risk avenue
Indentures - grant legal guarantee/
financial contracts
Diversification - offers portfolio
diversification to potentially reduce
short-term losses
Disadvantages
Inflation Influence - accrued fixed
interests face the risk of
devaluation when inflation exceeds
the coupon rate
Limited Liquidity - although
tradable, they are mostly
considered as long-term
investments
Lower Returns - generally offer
lower returns than equity markets
Mutual Returns:
Lower return than Equity funds
01 with comparatively higher

Funds security. NAV fluctuates with

changes in interest rates.

A debt fund is a mutual fund

scheme that invests in fixed-
income instruments, such as Investment:
AMFI suggests 3-6 months of
Corporate and Government
Bonds, corporate debt
household expense can be
invested in debt funds depending
02
securities, and money market on age and requirements.
instruments etc. that offer
capital appreciation.

Risks:
Credit Risk - default risk of issuer
not repaying
Interest Rate risk - effect of
03 interest rates changing
Liquidity Risk - carried by fund
houses of not having adequate
liquidity to meet redemption
requests

Taxation:
Upto a period of 3 years - short
term capital gains tax as per
income tax slab
More than 3 years - long term
04
capital gains tax at 20% with
indexation benefits
 Types according to AMFI
Fund Feature Suitability Fund Feature Suitability

Alternative to savings bank A/c, medium to long Ideal for investors looking for
low duration: <91 Monthly Income
Liquid Funds potential to offer higher post-tax duration with <30% returns better than traditional
days Plans
returns equity exposure debt instruments

Ultra short-Term protects initial

low duration, <1 year ideal to park short term surplus
Bond Funds investment from
Capital Protection Have a small equity component
capital erosion with
Oriented Funds so ideal for risk averse investors
no guaranteed
Short-Term Income Medium duration, 1-3 Investors can benefit in a rising returns
Funds years interest rate scenario

actively managed by
Dynamic Bond reducing or Minimises interest rate risk and
Fixed Maturity Passively managed Alternative to FDs with
Funds increasing portfolio offer higher flexibility
Plans close ended funds investment horizon >3 years
maturity

Funds benefit when interest

Long-Term Income Medium to long Credit Opportunity Consist of lower Suitable for higher risk taking
rates fall as NAVs or bond
Funds duration, 3-10 years Funds rated bonds investor
prices are inversely corelated

Benefit most in falling interest minimises volatility Offers steady returns in line with
Medium to long Floating Rate
Gilt Funds rate enviornment and carry by linking rate to the prevailing market interest
duration, 3-20 years Funds
negligible credit risk MIBOR rates
Market Linked Returns:
The return on investment in MLDs

Debentures 01 depends on the market index.

Here, the investor can earn
higher returns on investment if
the market performs well.
Debt instruments that offer returns
based on the performance of an
underlying market index or Investment:
instrument. They are issued by They have a minimum investment
companies or financial institutions
to raise funds from investors who
amount of INR 1,00,000. Prior to
Jan 1 2023, it eas INR 10,00,000.
02
are willing to take some market risk
for higher returns.

Risks:
It is associated with the market
linked debentures as the return
calculated on the investment is
03 highly dependent on the
underlying market index.
Resulting if the market couldn’t
perform well, then the investor
may not earn interest.

Taxation:
Listed MLD: Return is taxed as LTCG at 10% without
indexation/20% with indexation, as per the investor’s
choice if the holding period is more than 12 months and at
slab rates, if it is less than 12 months.
Unlisted MLD: The taxation is the same as for unlisted debt
securities. The return is taxed as LTCG if the holding period
04
is more than 36 months at 10% without indexation for non-
residents and 20% with indexation for residents. If the
holding period is less than 36 months, STCG is taxed at
slab rates.
 Types
Type Description
Structured financial instrument offering a
blended product of fixed-income and market-
linked returns and guaranteeing the payback of
the principal amount at the time of maturity.
Principal protected These are popular mld investment options for
risk-averse investors. These investors aim to
protect their principal amount invested and are
ready to get a comparatively lower interest rate
than other market linked debentures.
MLDs in which the investor will not get the
principal amount he invested while buying it
Non-principal
because the issuer company clearly works as
per the conditions that at the time of adverse
protected
market conditions, the company is not liable to
pay to its investor even the principal amount.
Advantages
Hybrid exposure to asset classes
Superior return potential in comparison to
traditional investments
Safeguarded against negative risks
Disadvantages
Credit risk - issuer default or becoming
insolvent, resulting in a loss of both the
principal and the coupon payments.
Liquidity risk: MLDs have a fixed tenure,
and the payoff is acquired only at maturity.
This means that if the investor needs to exit
before maturity, they may face difficulty in
finding a buyer or may have to sell at a
discount.
Liquidity risk: MLDs have a fixed tenure,
and the payoff is acquired only at maturity.
This means that if you need to exit before
maturity, you may face difficulty in finding a
buyer or may have to sell at a discount.
REITs
Real estate investment trusts 01
(“REITs”) allow individuals to invest
in large-scale, income-producing
real estate. A REIT is a company
that owns and typically operates
income-producing real estate or
related assets.
Investment rules laid by SEBI:
Returns:
REITs are true total-return
investments. They provide high
dividend yields along with moderate
long-term capital appreciation. For
e.g., FTSE NAREIT Equity REIT
Investment:
REITs investment in India can be
made through direct stocks, ETFs 02
or mutual funds.
Factors affecting investor’s
choice:
Location of the underlying
assets
03 Valuation of the assets
Expected cash flows and
profit opportunities
Leverage
80-20 rule
mandatory distribution
Public listing
04
 Types Advantages
Type Description
Steady dividend income and capital appreciation
it is concerned with operating and managing income-generating
Option to diversify
Equity commercial properties. Notably, the common source of income here is Transparency in dealing
rents. Liquidity
Accrues risk-adjusted returns
Also known as mREITs, it is mostly involved with lending money to
proprietors and extending mortgage facilities. Further, REITs tend to
Mortgage acquire mortgage-backed securities. Mortgage REITs also generate
income in the form of interest accrued on the money they lend to
proprietors. Disadvantages
This option allows investors to diversify their portfolio by parking their Lack of tax benefits
Hybrid funds in both mortgage REITs and equity REITs. Hence, both rent and Market-linked risks
interest are the sources of income for this particular kind of REIT. Low growth prospects
Higher expense ratio
These trusts function as private placements, which cater to only a
Private selective list of investors. Typically, private REITs are not traded on
National Securities Exchanges and are not registered with the SEBI.

These trusts extend shares that are enlisted on the National Securities
Publicly traded Exchange and are regulated by SEBI. Individual investors can sell and
purchase such shares through the NSE.

trusts extend shares that are enlisted on the National Securities

Public non-
Exchange and are regulated by SEBI. Individual investors can sell and
traded purchase such shares through the NSE.
InvITs
These trusts are like mutual funds,
which enable direct investment of
small amounts of money from
possible individual/institutional
investors in infrastructure to earn a
small portion of the income as
return.
Returns:
Most InvITs, both listed and unlisted, tend to offer
stable annualised returns of between 8-10% India Grid
01 Trust, which holds power assets, has delivered
annualised returns of 14% and total returns of 105%,
while IRB InvIT has delivered 12.63% over the last one
year
Purpose:
The primary objective of InvITs is
to promote the infrastructure
sector of India by encouraging 02
more individuals to invest in it
which can be modified according
to a given situation.

Investment rules:
An InvIT must invest at least 80% of its total
assets in completed infrastructure projects
capable of generating income. The remainder of
assets up to a limit of 20% held by the InvIT can

03 be invested in under-construction infrastructure

projects and various SEBI-approved Equity, Debt,
and Money Market instruments.
InvITs must distribute at least 90% of their
income to their unitholders as dividends on a bi-
annual basis.

Taxation:
STCG if investment held for three years prior
to selling it. Gains in excess of Rs. 1 lakh from
the selling of such InvITs units are subject to
a 15% STCG without indexation.
04
LTCG if units are sold after three years of 10%
over gains of Rs. 1 lakh without indexation.
 Types Advantages
Basis Types
Diversification
Regular income
Professional management
Capital gains
1. Energy such as power generation and distribution
2. Transport & Logistics e.g. operating highways and other toll roads
Operating 3. Communications e.g. optical fibre networks and telecom towers
4. Social and Commercial Infrastructure e.g. parks
infrastructure
5. Water and Sanitation e.g. irrigation networks

Disadvantages
Privately-Held InvITs: This type of InvIT is not listed on the stock Possibility of unpredictable cash flows
exchange and units of this type of infrastructure trust cannot be Taxable dividend and interest income
bought or sold on a stock exchange. All units of this type of unit are Limited investment choices
held privately by a very limited number of individuals or institutions. Low liquidity
Public-Listed InvITs: After an Infrastructure Trust lists itself on the
Source of funds stock exchange, it is known as a public-listed InvIT. Units of a
public-listed InvIT can be bought and sold on stock exchanges by
retail as well as institutional investors. Current SEBI regulations do
not require a mandatory listing of InvITs on stock exchanges.