Should you invest in 30-year government bonds?

Mumbai: Investors looking to put money in safe long-term products could consider the 30-year government bonds, which are coming up for sale on October 13 th and 14 th. The bond with a coupon rate of 7.16% maturing in 2050 bonds will be available at Rs115 per unit, translating into an annual yield of 6.22%, according to freefincal, a personal finance blog. Wealth advisors however warn that the product is illiquid for now, making it risky for an individual investor to lock in a large amount.

The minimum bid requirement for the product is Rs 10,000 and the maximum is Rs 2 crore. The bids need to be done on the NSEgoBid– an online platform through which retail investors can purchase Government Securities. Bond holders will get interest twice a year– April and October.

“These bonds are a good fit for investors who want to buy and hold till maturity,” says Vikram Dalal, Managing Director, Synergee Capital.

These government bonds could be a good substitute to a pension plan. For instance, LIC’s pension plan for a 40-year old would pay more than 6.22% offered by the government bond but the insurer would keep the principal, wrote M Pattabiraman, founder of freefincal. In comparison, the government bonds will pay interest for 30 years and return the principal. LIC’s pension plan that returns the principal pays a lower rate, said Pattabiraman.

Government of India bonds score over corporate bonds as they do not carry credit risk, though they carry interest rate and intermittent price risks.

“Corporate bonds and fixed deposits come with a 5-10 year period and there is reinvestment risk here. For investors looking beyond 10 years, this is a good constituent in the debt portfolio,” said the chief investment officer of a domestic fund house.

Dalal said there are practical difficulties for investors to buy these bonds as most retail brokerage houses do not have a facility where investors can bid and buy these bonds.

“Once bought, these could be illiquid in nature as volumes in debt markets are low. Also once these bonds come in subsidy general ledger (SGL) form and they need to be converted in demat form with the help of the depository participant,” said Dalal.

S Shankar, CFP, Credo Capital said, “Investors who understand the math and can do their own calculations on bond yields can buy these bonds. Investors who need liquidity would be better off with mutual fund products.”

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