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Why you should look beyond Bank FDs for returns?
Non convertible debentures
Non-convertible debentures (NCDs) are offered from time to time by non banking finance companies. Recently, Shriram Transport, Muthoot Finance and IIFL issued non convertible debentures. The yields from these NCD's can reach as high as 14%. Some of the coupon rates on these NCD are as high as 11.5-12%, while you can buy them through the exchanges, since they are listed. Some of them can be purchased from the market at a lower rate than they were issued, pushing your yields further. You can also sell them easily on the stock exchanges, though at times these instruments may not have great liquidity.
Interestingly, no TDS is deducted on the interest earned from NCDs, but you would have to show them as part of your total income, when you file returns.
Company fixed deposits
Company fixed deposits easily beat interest rates offered by banks. Take the case of Mahindra and Mahindra Financial Services. The company is offering an interest rate of 10 per cent on three year deposits (non cumulative). This is at least one per cent over and above the interest rates offered by most banks and is very secure. The two year cumulative scheme comes with an interest rates of 10 per cent, while a three year deposit comes with a coupon rate of 10.25%.
Kerala Transport Development Finance Corporation is a government of Kerala undertaking and the fixed deposits are guaranteed by the government of Kerala. The three year deposit gives an interest rate of 10.25%, while for deposits above Rs 25 lakh you get a sizeable rate of 10.50%. Being guaranteed by the Government of Kerala these are extremely secure and even more secure then some of the banks.
Tax Free Bonds
Tax free bonds are issued by government entities like HUDO, Indian Railways finance Corporation, REC etc. Last year, these entities issued bonds at coupon rates slightly higher than 8%. This is of course lower than bank rates of interest. However, these instruments offer tax free income, which means the interest from these instruments will not be added in your total income. So, if you are in the highest tax bracket, your post tax returns will be more than 10%. Also, these bonds are listed on the exchanges making them very liquid.
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