Investing in Fixed Income: A Distinct Approach

The world has seen extreme changes in the past 2 years due to the slowing economy of European
countries, trade war between US and China and the political issues related to Iran and North Korea.
2020 has seen the greatest human and economic challenge since the great depression and countries
are fighting Covid-19 on one hand and trying to revive their falling economies.

Consumption has reduced drastically as most of the world has been under lockdown and the rate
cuts (to spur growth and revive economies) have had a dent on savers and their income from fixed
income products. Investor has also money in fixed deposits (PMC), Bonds (Yes Bank, DHFL,
Indiabulls, Reliance Capital etc.) and equity markets. As an individual it is therefore important to
analyze different products with respect to returns and at the same time compare the risks associated
with it.

We would hereby try to understand different investment assets and what returns they have generated
in last one year.

Bank Fixed Deposit (principal protected up to 5 lacs) Returns on their fixed deposits have shown a
downward trend

8.00% 6.85% 7% 6.90%

8.00% 6.85% 7% 7% 5.70% 5.75% 5.75%
5.70% 5.75% 5.75% 6.00%
6.00% 2019 2019
4.00%
4.00% 2020 2020
2.00%
2.00%
0.00%
0.00%
SBI ICICI Bank HDFC Bank
SBI ICICI Bank HDFC Bank

5 Year Fixed Deposit Rates 3 Year Fixed Deposit Rates

 Deposit Rates

If we compare our deposit rates with some of developed countries, we can see there is a difference
of 5%-6%. We can expect lower Fixed Deposit rates going forward as we intent to become a
Developed nation from Developing.

Average Deposit Interterst Rates

Germany 0.01%

UK 1.60%

USA 1.40%

0.00% 0.50% 1.00% 1.50% 2.00%

Corporate deposits

As we can see from charts below corporate depos1its rates have gone down as compared to last year.

3 Year Corporate Deposit Rates

 5 Year Corporate Deposit Rates

Small Saving Schemes (Risk involved is negligible as these are government schemes) -These are
various schemes initiated by the government for investments but again these are taxable and the
return has been going down.

Small Savings Scheme Returns (in %) (April 2019 –April 2020)

8.5
7.8 7.4 8 8
9 7 7 7 7.3
6.7
7.3 6.8 7.1 7.7 6.9 7.6
8
7 5.5 5.5 5.5 5.8
6 44
5
4
3
2 2019
1
0
2020
Mutual funds (Investment is subject to market risk) – Investment in mutual fund should be done
only after having a proper knowledge about the purpose of schemes. In last two years there have
been many credit events because of which money of investors has got stuck because of their
investments in credit opportunity funds. Apart from investment in ELSS all other mutual fund
investments are taxable. Let’s have a look at the return provided by different schemes.

Mutual Fund Returns:

Type 1 Yr Returns
Credit Risk Funds 3%-3.5%
Corporate Bond Funds 5%-6%
Large Cap Fund Returns -15% to -20%
Midcap Fund Returns -20% to -25%

From below G-Sec curve we can assume if an individual would have taken direct Government
Securities exposure, he would have got better returns rather than investing in any of the mutual fund
schemes

Gsec Trend
7.5
7
6.5
6
5.5
5

Investments in bonds – There are tax free and taxable options available in market. Depending
upon risk appetite returns rage from 8% - 11%. If we compare this with all other products this yields
better. Benefits of investing in bonds are as follows.

• Safety - One advantage of buying bonds is that they're a relatively safe investment. Bond
values don't tend to fluctuate as much as stock prices.
• Income - Another benefit of bonds is that they offer a predictable income stream, paying
you a fixed amount of interest once or twice a year.
• Diversification - Perhaps the biggest benefit of investing in bonds is the diversification
bonds bring to your portfolio. Over the long run, stocks have outperformed bonds, but
having a mix of both reduces your financial risk.
 Darashaw’s role

Darashaw is a 90-year-old firm specializing in Debt Market. We have been using our expertise to
service clients as per their risk appetite. We have been helping our client to invest in those papers
which are safe, secure and which provide higher returns compared to traditional investments. With
our vast experience in bond markets we have been providing services like analyzing client’s
portfolio, his liabilities, risk appetite, future financial needs and then suggesting appropriate bonds.
Following chart shows investment as per risk appetite.

Disclaimer: This report has been issued by Darashaw & Company Pvt Ltd (CIN- U67120MH1994PTC076656) is registered with Securities and
Exchange Board of India (“SEBI”) as a Stock broker, Merchant banker, Portfolio manager, Research analyst. The information herein has been
obtained from various sources and is meant only for general reading purposes. Darashaw does not guarantee its veracity, accuracy or completeness.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. This research
report is not prepared for any particular recipient. It does not have regard to the specific investment objectives, financial situation and the particular
needs of any specific person who may receive this report. Investor may seek financial and other advice before relying on the data set out in this report.
It is possible that any possible inferred change in position of such securities may not happen. Investor should note that income from such securities, if
any, may fluctuate and that each security's price or value may rise or fall. Past performance is not necessarily a guide for future prospect and
performance.