Thanks to the ease and safety, bank deposits have been the most popular avenue to generate “fixed income”. But the fixed income market in India has become far more diverse over the years.
You can lend money directly to corporates & start-ups through listed instruments like Non-Convertible Debentures (NCDs) or Market Linked Debentures (MLDs) and earn 2-3% higher returns compared to fixed deposits. Not only are these instruments well regulated, some of these instruments can be tax efficient too.
Of Course the higher returns come with some additional risk. NCDs/ Bonds/ MLDs can lose substantial value if it defaults. Although the probability of defaults in AA rated companies is very low, it’s definitely not zero. Recently, we saw that ILFS, was AAA rated company, but it still defaulted.
At GreenEdge, we use our proprietary risk framework to assess credibility of the promoters & soundness of their business before advising it to our clients. This has ensured that our clients enjoyed better than FD returns without any meaningful increase in risk.