‘Should you invest in a long bond? and or / Who should invest in a long bond?

The answer is simple. If you are say 65 years of age (or older) and there is a psu bond on offer and it is paying a coupon of say 8% (it is more likely to be 7.5%) and it is a 15 to 20 year term, just go and blindly buy it.

Look at the advantages:

– it is a fixed return for the next 15 years of your life (assuming no call option is available – put option you do not need)

-there is no default risk if it is a Psu (hopefully the sovereign guarantee will not be withdrawn)

– you know the exact date of interest

– you know the exact date of maturity

– it is listed and you have the flexibility of partial liquidity in case of an emergency

– if a cumulative option is available you can invest a small portion and differ the tax by 15 years (debatable about the option, but there is a way)

So at age 70 buy some options of PSU bonds – ask the people whom I forced (literally down their throat when they bought the PSU tax free bonds @ 9% yield) they are sitting on a 23% appreciation on their debentures!!

Then at age buy another product which ‘financial advisers’ do not sell. Well not too many people understand the importance of simplifying their portfolios. So at age 75 add an annuity. If you are already aged 75 go to LIC (for those who do not know, there is no choice). This product is likely to give you a 9% yield on a wasting corpus basis (ok it means if you die your heirs get nothing). This too is a good option for a small portion of your portfolio – or even a big portion of your portfolio.

Recently a client bought a Rs. 1 crores annuity – with the assurance that even in case he lives longer than anticipated he is assured of getting a monthly pension that takes care of his expenses at the old age home where he is staying.

There are not enough advisers who understand the importance of the long bond (no not the long bond fund) and annuity in a retiree’s portfolio. Be careful.


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  1. Dear Subra,

    My father is 80 years old and he has put in all of his life’s earnings in PSU bank FDs and in savings bank account. His daily expenses are met thru his pension (retired govt. employee) and he doesn’t need to dip into his savings for it.

    I have been advising him to put some of his money in safe Bonds, NCDs (of course not the JP type companies) or in corporate FDs but he is scared of using his PAN card anywhere! Objective is to let this idle money grow at a better rate than bank FDs.

    I am curious to know about the annuity option which you are suggesting in this post. How does it work? Sorry, couldn’t understand properly from the post.

    In fact, what is the better way to park this money considering his age and no IT history?

    Can you please guide me please?


  2. you should get his kyc done and invest in a small SIP (of say Rs. 3000) in a MIP (monthly income plan, growth option say Hdfc MIP (Long term).

    Even over a small period he MIGHT be able to see a growth.

    HOWEVER PLEASE REALIZE EVEN IF HE DOES NOTHING HIS LIFE GOALS HAVE BEEN MET AND HE IS HAPPY with the situation. If the fund (it has an element of equity) falls in value and he gets upset, the exercise would not have been worth the effort.

    The advantage of investing in mutual fund (say debt schemes) is that there is no headache of TDS form 15 etc

  3. Dear Subra,

    Thanks for advise.

    I love the fact that you capture the ‘human’ aspect so well along with giving financial suggestions.

    I understand the potential dip in returns will upset him and not letting happen is more important than seeing the corpus grow.



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