Let’s talk about the investment instruments available on this particular platform. In what instruments can we do SIPs and how can it be done?
Suresh Darak: Earlier, there were SIPs in equities, mutual funds. We had never heard of SIPs in the bond market. This is the first time RBI has decoded how SIP can be done in the bond market because the ISINs keep on changing in the bond market as they mature. The process is the same as the way you do the SIP in the equity or mutual fund where you fix the amount and that amount on a particular date will be invested in selected security. The treasury bills are normally 91-days, 182-days, or 364 days. You select the instrument on that particular day when the bidding is happening, your money will be debited from your bank account and securities will be transferred in your Demat account. That is how this SIP is going to work.
Right now, the yield on treasury bills is closer to 5.5%. So, around that will be the returns for your bond SIP. If you are keeping your money idle in a savings account or a current account (where you are earning less than zero percent) and less than 3% in the case of a savings account, bond SIP is a better instrument and gives better return. But yes, compared to other options which are available like liquid mutual funds, it is not a great option to invest in SIP.
Frankly, I am excited about the SIP in the bond market. At some stage, it will come in the dated security, long-term securities, or government securities for 1 year to 10 years or 15 years or corporate bonds, which will be a great investment opportunity for the people.
Would you help investors understand the tax implications attached to these investment instruments?
Suresh Darak: Tax is same as per your slab rates. The way the interest income is taxed, it will be taxed in the same manner, it is as simple as it is. Based on your tax slabs, you have to pay the tax. TDS will not be deducted, that is the advantage. Apart from that, once you are filing your income tax return, it will be added to your gross total income and you have to pay tax as per your slab rate.
What is going to be your recommendation?
Suresh Darak: The risk averse investor will probably go for it. Otherwise, my first investment opportunity will be in a liquid debt mutual fund. But if I do not believe in liquid funds, then probably I will go for treasury bills because managing a liquid mutual fund is a better option for your short-term liquidity. So, it is a short-term instrument. I am more excited about SIP in bonds. RBI has figured out how to do the SIP in bonds and that is a big thing and it will be a game changer from the future perspective because the same will be implemented in case of long-term government securities and corporate bond market in future times. It has set the path right, so that is a big thing. But apart from that, right now, how successful will SIP be, I do not know but yes, the risk averse investors can go for it because it is a sovereign and there is a zero default risk in this.How will you be earning more? Is a lump sum going to get you more profit or an SIP? SIP is more about convenience. If you do not have a large sum of money to put, you can just put it in chunks. But eventually when I look at my returns, my profit, will I gain more by doing a lump sum investment?
Suresh Darak: So, what is the bond market? It is a game of interest income. If you are holding money in your bank account even for a day, and if you are not investing, you lose that money. You are not earning interest for that particular thing. The bond market is all about being disciplined and investing money whenever you have money in your hands. Today if some money is lying in your current account bank account, invest in the liquid mutual fund or bond market. Do not waste a single day. The day is gone. It is not an equity market where you have to wait for the price level or the yield level. From that perspective, this proposition does not look that sound. But as we discussed, once it is implemented for the long-term government securities where you are investing for say three years or five years, it matters a lot because you are creating a portfolio, or corporate bond market where the returns are in excess of 8% to 12%. Of course, some risk factors are there.
It is good for people who are absolutely risk-averse and because of that they keep money in saving accounts and current accounts. More than Rs 60 lakh crore is lying in the savings accounts and Rs 20 lakh crore is lying in the current account. So Rs 80 lakh crore is a huge sum. It is lying there because people probably do not have confidence in the alternates which are liquid mutual funds or something like that. For them, it can be a better way and at least you can assume that you are getting better returns, maybe 5.5% instead of keeping money in the current account where zero percent returns are there, on the saving account with less than 3% returns.