Are interest rates going up or going down? Very this is a trillion dollar questions at all points in time is it not?
Well I did put in some money into the SBI bond issue – and was pleasantly surprised to see the limit was raised to Rs. 500,000 per application in the retail segment. SBI is paying 9.9% interest p.a. Add to this the cost of printing the form (the story is they have overpaid even for form printing!), the issue costs, stamp duty,…etc. All this means SBI is getting funds at 11% p.a.
This means home loans (floating) cannot get cheaper, industry will see interest costs go up….all this is not good news.
However SBI has come out with a very small issue of just Rs. 2k crores – and has a 8k crores green shoe option. I think SBI will keep the full amount – the equity markets are some indicator of interest rates….and does not look too good!
Why have I applied for a debt instrument?
Well I am sure that interest rates HAVE NOT PEAKED out…so I will see a small depreciation in my portfolio in the immediate short term when interest rates peak out. Then when the markets come down, these bonds will go up in value – and at that time it will provide me with the liquidity to buy shares. In my parents’ case, (the 15 year bond is a cumulative bond) it can be used as a draw down vehicle for the next 4-5 years…to exhaustion!
So if you were considering buying an annuity giving you 5%p.a. ….well you should have filled in the form for SBI bonds. Even if you are anti debt products, a die-hard equity guy, it is still all right to be still putting money in these bonds, and use it as a liquidity tool as and when you need for buying shares. After all it is listed!
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