Corporate bond yields have been on the rising spree ever as a host of factors are into play such as interest rates, inflation, economic growth and yield curve. So as the corporate bond yields are scaling to as high of 8.5-9% with borrowings by corporate for a span of 10 years. You can likely cash on the environment thrown open in the debt market by lapping in some of these lucrative bets:
1. NBFC FDs: Corporate FDs can be a better bet with a higher rating and can provide you returns higher by several basis points over and above bank FD rates. Nonetheless their credit rating is the topmost criteria to look upon. Also, some corporate are providing better interest rates when the FD is booked online. For eg: Mahindra Finance FD rated FAAA by Crisil offers 8.75% return under its cumulative plan for 33 months.
There are other FDs from leading NBFCs that can be booked with a cumulative return aspect.
2. Debt funds carrying low maturity duration: SEBI has advised on mutual fund re-categorisation and so in its wake as the interest regime in the recent term frame is highly unclear, investors need not lock in their money for lock in a given fund and be at interest rate risk. Instead, there are a handful of money market, duration and ultra-short term funds which can be tapped for better returns.
Investors should spread their debt portfolio across instruments to lock in higher rates that provide liquidity as well. Some of the criteria's to book in these instruments that need your due consideration are expense ratio of less than 1%, average yield to portfolio maturity and high quality portfolio.
3. Fixed maturity plans: These plans which are closed ended in nature invest in debt instruments with the same maturity of the FMP so the interest rate is warded off. Also, the other advantages include lower expense ratio in comparison to open ended schemes, with better taxation as if held for over 3 years than LTCG @ 20% with indexation applies, so more tax efficient than bank FDs.