“Let us get the basics right, Subra, if you want to be safe, you should invest in gilt. Equities, equity mutual funds, etc. are for the rich people who read your blog NOT FOR middle class people like me. I am a bank manager and I have all my money in bank fixed deposits. I feel safer that way”

Absolutely correct Mr. Reader ( he has not asked for his name to be withheld, but JLT).

You should be even more safe – why risk investing in India where there is a currency risk? You should be investing in the US gilt. Is that not the safest?

You will get nominal returns of 1.6% p.a.

However, Mr. Reader the persons who have invested in the US Gilt are getting a NEGATIVE 6.8% return, because inflation is rearing its head even in the US. The US government is (as usual) looting the small saver..and giving him negative returns (true in India also – LIC helps the government).

By the way Mr. Reader do you know what happens when interest rates go up, say to 5% p.a.??

Brilliant people like you who have invested in US Gilt, will lose their shirt, pant and…..

NEGATIVE RETURNS AND HUGE PORTFOLIO LOSSES ARE a sure fire guarantee for US GILT LONG TERM INVESTORS.

It is very difficult to make retail investors in Gilt funds understand ‘interest rate risk’, ‘duration’ and re-investment risk. Also most of the Central banks in the world (including RBI) are even thinking of the hurt that inflation causes among the poor people.

So if you are investing in Gilt, with a current yield of 1.5% NOMINAL interest (in a country where the Central bank says inflation is 1.9%, and the market says it is about 5% p.a.)…INFLATION will ensure that you get a negative return.

Such negative returns are called LOSSES -PORTFOLIO losses, if you may….

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  1. Subrabhai, bank manager, you said?
    Either he should have known all this. OR he will never know all this.
    bhensh agal bhagwat as we say in the vernac.

  2. “You should be even more safe – why risk investing in India where there is a currency risk? You should be investing in the US gilt. Is that not the safest?”

    Extrapolate what someone says and then go on a needless rant. Nice.

    Maybe more people will read you blog if you stop acting like you know everything while we are supposed to be ignorant dimwits.

  3. There is complete inconsistency in this article. Comparing FD with Indian bank, US Gilt, FOREX, US Inflation and Indian equity is quite confusing.

    My BIL had invested in nearly USD 50K in Indian equity when the FOREX was USD = 38 INR. He suffered portfolio losses and currency devaluation. After about 4 years or so, finally 10K USD went back to his kitty. Same is the case with 3 other family members. They are very happy to reduce their networth owing to US inflation ( 4%) than Indian equity/currency loss (70-80%). I am not sure these Indian Americans would ever come back to investing in India.

  4. Dr M Chandrashekhar

    You said, Bank Manager- & he invests only in FDs. These days Bank Managers are busy conning Investors to invest in Corporate FDs, Debentures,ULIPs, Mutual Funds etc esp. if you are not inclined to invest in their bank FDs.

    To me the whole discussion is quite confusing & appears to be a figment of fertile imagination!

  5. Why will gilts lose value if Central Banks maintain interest rates much below inflation rate %? Central Banks can keep dropping the interest rates and the increase in bond prices will offset inflation right? While you can say that 0% is the theoretical limit, you can always keep the game going by dropping the interest rates in fractions…like 0.00025% and so on…Approach zero without actually hitting zero…

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