Two bonds that beat rising interest rates & inflation

Following two bonds would generate alpha of 2%-3% more than ultra-short/short-term funds. INRBonds is a specialized bond and fixed income research and transacting platform in India. Our purpose is to help customers like you to invest in bonds to help you save better. Through our proprietary research, we have identified following bonds as they meet the dual goal of a healthy return with a low-risk profile.

Central banks had set interest rates at all-time lows to battle against the Covid-19 pandemic which caused the yields of money market instruments, bonds and fixed- deposits to fall drastically. Last two years, fixed income portfolios have either underperformed or witnessed drawdowns. Global economies are witnessing recovery and central banks are rising rates to battle against decade high inflation figures causing bond yields to touch-back pre-covid levels. However, the spread between inflation rate and bond yields is much wider. Post tax yields of fixed income products are nowhere close to inflation rate. Central banks are now hiking rates, Fed guided for 6 rate hikes and is planning to shrink balance sheet by USD 95 billion per month. Long maturities are prone to duration risk, which makes short-term bonds attractive now.

Five Star Business Finance and JM Financial Credit Solution bonds offer investors as an attractive alternative to ultra-short/ short-term funds which are given barely 4% to 5% annualized yield. Above mentioned bonds would generate 7.3% annualized yield.

Five Star Business Finance

Five Star Business Finance Ltd bond would provide investors higher returns than fixed deposits & mutual funds and on quarterly basis investors gets 25% capital as an early redemption. Five Star Business Finance Ltd bond has 12 months tenor and offers a yield of 7.3%. Halfway to the maturity from now, investor of this bond would get 50% of their principal back along with 10.23% quarterly coupon. Comparison

JM Financial Credit Solution

JM Financial Credit Solution Ltd bond’s coupon is linked to 1 yr SBI MCLR + 1.6%. MCLR rate depends on factors like repo rate, CRR, marginal cost of funds, tenor premium, and operating cost. Since interest rate cycle turning upwards, MCLR rates are expected to rise too. Interest rate cycle is changing from ultra-loose monetary policy to tightening monetary policy In the coming 6 months if RBI hikes interest rates by 50bps then it would get factored into MCLR rates, which benefits investor as the coupon rate is linked to MCLR. JM Financial Credit Solution Ltd has 27 months to maturity, pays interest on monthly basis and offers a yield of 7.3%.