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Gentlemen Prefer Bonds

An old wall street saying is that “ Gentelmen Prefer Bonds” shamelessly copied from the Marylyn Monroe movie “ Gentlemen Prefer Blonds”.

But one must wonder today when Dalal Street is moving to new highs every week should one shun the roller coaster ride or equities and go to the calm backwaters of bonds?

The reason to raise this point at this stage is the current issue of IDFC Infrastructure bonds. For last few years nobody has talked about infrastructure bonds but this year again they are in vogue.

This year upto 20,000 Rs are allowed to be invested in Infrastructure bonds and the investor gets a tax deduction on this amount which is over and above the current limit of Rs 100,000/- per annum.

Now the question is should you be investing in these bonds ??

Time and again I like to remind myself and my readers is that this blog is not an advise blog to others as in personal finance each one of us has totally different aspirations, and risk taking capabilities. The main purpose of this blog is to share my experiences with my readers, and the reason I took or plan to take certain decisions, what you do with your money finally depend on you. No point in making your own mistakes when you can learn from others.

Coming back to the heading for this article: “Gentlemen prefer bonds”, clearly denotes that bonds are for people who are not comfortable with the daily fluctuations in the equity market and prefer the predictability of steady returns from the bonds.

The advantage of investing in the IDFC bonds will be only if you have or will be exhausting your 100,000/- per annum in tax saving instruments. Most of us will have some insurance policy, EPF and or PPF children school fees etc. If these itself are not reaching to 100000/- then there is no point in investing in the IDFC bonds as you do not get any additional benefit, but if you have or will be exhausting the 100000/- Rs limit then you can look at the bonds.

I will not like to go in the details of how much return you will get from the bonds as all these things you can get from IDFC website.

Let us talk about broader picture.

  1. Your money will be blocked for 5 to 10 years depending on the option you take.
  2. Equity is expected to beat bonds over long term and 10 years is pretty long.
  3. Interest rates today have an upward trend.
  4. This is the first Infrastructure bond issue of the year and we may be getting some more in next few months.
  5. The future infrastructure bond issues may have slightly higher rate( this is wish not a fact)

So to summarize if you are willing to wait for 5-10 years and are ok with locking the current rate of interest without waiting for any further issues, and have exhausted your 100,000/- limit in other tax saving instruments the go for the same. If any of the above questions have an answer as no then you should skip the issue.

Thanks for reading, do leave your comments.

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