#bonds and debentures

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Union Budget 2023: Implications for MLD Investors 

Are there any alternatives to MLDs? 

This article will provide a brief overview of MLDs, their tax implications, and how the Union Budget of 2023-2024 will impact them. 

Let us begin by understanding MLDs,

What are MLDs?

The full form of MLD is Market-Linked Debentures. Market-linked debentures or MLDs are debt securities whose returns are based on the indices they are linked with. These indices can be Nifty 50, Sensex, Government securities, gold index funds, etc. Their value is tied to the performance of the indices. 

MLDs are mostly listed and regulated by SEBI. 

The tenure of MLDs typically is between 12-36 months. 

Before Jan 2023, the minimum face value of MLDs was Rs 10 lakhs. But an amendment made in Jan 2023 by SEBI brought a reduction of the face value of MLDs to Rs 1 Lakh per unit, making it more affordable amongst the masses. 

In general, issuers of MLDs define performance criteria tied to an underlying asset/index in a such way that it provides adequate downsize immunity for smaller market fluctuations thereby giving more protection to the underlying investment.  

  

What has changed with MLDs – Union Budget 2023 – 2024? 

 Pre Budget 2023

A listed MLD held for more than 12 months was taxed as LTCG (10%).  

Union Budget Announcement 

In the budget 2023-2024, Finance Minister Nirmala Sitharaman announced that, from 1st April 2023, the tax implication for MLDs will be the same as any other debt. The preferential taxation to these listed debentures will be scrapped. 

Also, before the budget 2023-2024, listed debentures available under section 193 of the Income Tax Act were exempted from TDS. However, the amendment has also removed this dispensation. 

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[kadam89priyanka]

ARE DEBT FUNDS WORTH INVESTING IN?

Introduction

Debt Funds come across as fairly mild investments with far lower risk and return than equity investments. While most major debt funds give returns of around 2-5%, certain funds such as UTI Bond Fund give returns as high as 8.39%. While equity is risky but easier to understand, complex debt instruments such non convertible debentures and bond returns are harder to understand for the general public - hence if you want to invest in debt, going through a debt fund may be a good choice.

What are debt funds?

Debt funds invest in debt instruments (both listed and unlisted) such as government and corporate bonds and sometimes sell them at a margin. The overall differences between the cost price and the sales price of the assets as well as the periodic interest received from the debt constitute the Net Asset Value (NAV) of the fund. 

Market prices of debt securities move as per the changes in the interest rates. For example, if interest rates get lowered, then the price of the bonds held by you (bonds with relatively higher interest rates) will increase, thereby increasing your fund’s NAV. However, if the credit rating of the debts held by your fall, then the price of the debts in your portfolio will fall too, thereby lowering your NAV.

Therefore, debt funds invest in instruments that can have capital appreciation or depreciation and therefore carry that particular risk. However, the interest received from the instrument is usually robust e.g. the Indian government’s 10-year and 2-year bond yields are 7.426% and 7.174% respectively (the risk associated with which is fairly negligible). 

Why invest in debt funds?

The following are a few good reasons why debt funds are worth investing in:

Stable returns - Interest returns from bonds are far more regular and stable than dividends received from stocks or capital appreciation of stocks. Therefore, debt fund investments are less risky than equity funds. 

High liquidity - Stocks often lose volume or sometimes have high lot sizes that cannot be afforded by small investors. However, the liquidity of debt instruments allows debt funds to adjust easily in times of downturn.

Partial withdrawal - While fixed deposits may give a similar return, they are not liquid. In contrast, investments in debt funds can be withdrawn partially to meet financial requirements.

Tax efficiency - While fixed deposits are taxed every year, debt fund returns are taxed only when they are redeemed and also have indexation benefits if sold after 3 years of the purchase date. 

Credit quality information - Unlike equity, debt instruments are rated by credit rating agencies and therefore are safer for retail investors.

Conclusion

It is important that you read up on debt instruments such as bonds and debentures before actually investing in a debt fund. If you like more risky investments, you could also consider investing in equity and open a demat account for the same.

Disclaimer: The above blog is for educational purposes only. The securities mentioned in the blog are simply exemplary and not recommendatory in nature.

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How to balance risks and rewards?

Evolving meanings of investments and risks

Older millennials and baby boomers expressing their fear and lack of taste for anything other than govt bonds, FDs and gold is not a new thing. Of course, the purpose and meaning of “investments” have evolved with time from ensuring survival to running after high yield.

Doing anything out of the ordinary, in any walk of life, was akin to taking risks a few decades ago. Doing something that others didn’t involve themselves in with money or investments meant the same as flushing them down the drain for nothing. But today, people have understood the fact that more risks mean they have the opportunity to earn more rewards as well.

Balancing risks and rewards

If we ask ourselves the fundamental question of ‘why we invest?’, we will find that it’s normally to be capable of buying a house or kid’s education or for a comfortable retirement life. But, there’s no free lunch available for anyone. We get more than what we give only if we are ready to take some weight of the risks on our shoulders. Most applicable in the world of finance.

It makes no sense to take risks when the outcome doesn’t justify the risks involved. Why take the chance of putting one’s hard-earned money at risk?

Risk not taken = lost opportunity?

It’s basically a trade-off between risk and the opportunity to earn that above-average returns. But, if one considers the outcomes of avoiding an investment that offers higher returns but carries more risk and going ahead with the investment while being aware of the risks involved, the difference will be quite apparent.

In case of things going south, there will be an opportunity cost:

One will lose out on the less-risky returns that could have been made during the time it takes to recover the lost investment.

If you find this article interesting keep reading here How to balance risks and rewards?

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The term debenture comes from the Latin word ‘debentur’, which means borrow. Debentures are one of the types of bonds that government entities or corporations use to raise capital. They are one of the most popular debt instruments, along with bonds. 

[finwisor]

Beginner investors are advised to start with bonds and gradually explore debenture opportunities. When investing in either loan instrument, it is crucial to take important elements into account such as interest rates, payback terms, and other pertinent possibilities.

[pallavirajput74]

Pros and Cons of Market-Linked Debentures

When it comes to growing your money, the world of finance offers a variety of avenues to explore. One such option that’s been making waves in India is Market Linked Debentures, also known as MLD bonds.

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Justin Singletary-Former Westpark Capital Broker- Discloses Customer Dispute Involving GWWG L-Bonds - San Clemente, CA

Justin Singletary Investigation June 2023 – San Clemente, CA According to publicly available records  Justin Singletary ,  a  stockbroker previously employed by Westpark Capital,  discloses a  pending customer dispute involving GWG L-Bonds. The Financial Industry Regulatory Authority (FINRA) is the agency that licenses and regulates stockbrokers and brokerage firms. FINRA requires brokers and…

[thefixedincome]

Bonds Vs Non-convertible Debentures:- Everything you need to know

Non-convertible debentures and bonds are both types of fixed-income securities, and many times both words are used interchangeably though they are both distinct fixed-income investment options. In this article, we will be understanding fixed-income instruments like bonds and non-convertible debentures and discussing their advantages and disadvantages. Contact us to know everything about bonds vs non-convertible debentures

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Investing in Bonds in Ahmedabad

Bonds and Debentures

We, ANG Finverse, are experts in managing a wide range of debt instruments for our clients in Gujarat and other parts of India. Generally, if the risk appetite of an investor is low, he prefers bonds and debentures. We assure you an assured stream of returns on your investments.

Providing investment guidelines

As professionals, we have observed that investors often struggle in understanding the various guidelines for investing in various bonds and debentures. We come to the rescue. You can rely on our skills to avail of the right guidelines and instructions properly and invest, without any hassles.

Assuring returns from safe investment

We expertly help investors to put their money in bonds and debentures with assured returns. We take care of the technical details and ensure the investment is safe.

Complying with market norms

We are experts in complying with the standard market norms of the financial domains. As professionals, it is one of our main priorities to operate within the regulatory framework, following government instructions. Our investment solutions are tested and certified. We consistently create lucrative opportunities for investors. They receive considerable tax benefits in several cases.

Addressing your investment queries

As veterans in the industry, we leave no stone unturned in addressing your investment queries. You get your undivided attention from one of our experienced managers. The expert pays heed to your questions and solves issues proactively. You can give us a call to know more details. We are here to serve you in the best possible way.

Article Source: ANG Finverse

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What Is Commercial Paper – The Beginner’s Guide

What is commercial paper?

Commercial papers are debt instruments issued by corporations to finance their short-term liquidity needs. These liquidity needs can be for funding working capital, enabling operations or financing inventory, or meeting payroll expenses. Off late, it is gaining in popularity as a fixed-income investment in India.

Why do companies issue commercial papers instead of borrowing from banks?

Companies issue commercial papers as a form of short-term financing because it is a source of diversified and flexible fundraising from individual investors.

Who can issue commercial papers?

Banks, NBFCs, financial institutions, foreign corporations, and other such entities issue commercial papers. The issuer entities generally undergo the due diligence of credit ratings agencies like CRISIL (Credit Rating Information Services of India Ltd.), ICRA (Investment Information and Credit Rating Agency of India Ltd.), and CARE (Credit Analysis and Research Ltd.) to evaluate their credibility and financial health.

What is the general tenure of commercial papers?

Commercial papers are debt tools with tenure as short as 7 days but not more than one year.

Are commercial papers secured?

Commercial papers are unsecured debt instruments with a promise of repayment on the maturity date. The issuer of the commercial paper promises to pay the purchaser a specified amount in cash at a future date without any collateral or assets backing the payment.

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[bondsindia]

Why A Nonconvertible Debenture Is The Best IPO For Private Companies

A nonconvertible debenture (NCD) is the best initial public offering (IPO) for private companies for several reasons. First, NCDs are not convertible into equity shares, so they do not dilute the ownership of existing shareholders. Second, NCDs are unsecured, so they do not require collateral. Third, NCDs have a fixed interest rate, so they offer predictable cash flows to investors. Finally, NCDs have a longer maturity than most other debt instruments, so they provide private companies with long-term financing.

A non-convertible debenture (NCD) is a type of debt instrument that does not have the option to be converted into equity shares. NCDs are typically issued by companies to raise capital, and are often listed on stock exchanges. Interest on NCDs is generally paid out at fixed intervals, and the principal amount is repaid at maturity.

NCDs have become increasingly popular in recent years as a means for corporates to raise capital. The main advantage of issuing NCDs is that it allows companies to tap into new sources of funding, without having to dilute their equity shareholding. Additionally, interest payments on NCDs are typically tax-deductible, making them an attractive investment for many investors.

There are some disadvantages to issuing NCDs as well. Firstly, they typically have a longer tenure than other debt instruments, which can increase the risk for the issuer. Secondly, interest payments on NCDs are not always predictable, as they may be linked to market rates. This can make it difficult for issuers to budget for interest payments in advance. Finally, NCDs typically have higher coupon rates than other debt instruments, which can increase the cost of borrowing for the issuer.

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Overall, NCDs can be a useful tool for corporates looking to raise capital. However, it is important to consider the risks and costs associated with this type of financing before making any decisions.

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Why invest in Alternative Investments?

Many investors believe that investments are limited to stocks, mutual funds, bonds, etc. While these traditional investments work for many, a very niche set of investors knows that there’s a lot more potential with Alternative Investments.

What are Alternative Investments? Why don’t many investment education channels talk about them? What are the benefits of alternative investments? And how can a beginner invest in alternative investments?

Benefits of alternative investments:

Alternate offer higher returns

When we invest in anything, we often look at its past performance and rate of return. Thus, many investors get drawn to the potential returns offered by alternative assets. While returns can never be guaranteed, be it traditional or non-traditional assets, alternative assets show the potential to offer higher returns. We have all heard high risk equals high returns, the same is the case with alternative investments.

Less Volatility

Traditional markets have high volatility and long drawdowns like the 1914 and 2008 crashes. Unlike the traditional methods, alternative investments rely more on the strength of each specific investment, and rarely on broad market trends. Thus, alternative assets potentially reduce the overall risk of a portfolio.

Broader diversification

With little to no correlation to traditional asset classes, alternatives can be a beneficial way to diversify the portfolio.

Easier to beat inflation

Most investments, like fixed deposits, seldom manage to beat the inflation rate. Broadening your portfolio with alternative assets is a great way to potentially receive higher returns. When we speak of the benefits of alternative investments, we cannot speak about the Yale endowment model.

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What is better for passive income, a debenture or a bond?

What is better for passive income, a debenture or a bond?

Good question. To avoid any confusion technically a debenture is bond. The difference is a debenture is unsecured or non-collateralized debt often with longer maturities.  Many government bonds are examples of debentures. The interesting thing is government bonds are considered to have zero default risk since the government always has the ability to create more money so default is by…

[haku2naomi420]

• 社債 「しゃさい」 - corporate bond, corporate debenture

• 国債 「こくさい」 - national debt, national securities, government bonds, government securities

• 債権 「さいけん」 - credit, claim

• 債務 「さいむ」 - debt, liabilities, obligation to a person or party (usually legal or contractual)

• 公債 「こうさい」 - public debt, public bond, government securities

• 負債 「ふさい」 - debt, liabilities

• 募債 「ぼさい」 - raising of a loan, loan floatation

• 債券 「さいけん」 - bond, debenture