With the rise in interest rates, corporate bonds are offering a much higher rate than fixed deposits. Consider this: While corporate bonds are offering an interest rate of up to 13 per cent, fixed deposits are giving an average interest rate of just 5-6 per cent for the tenure of one to three years.

“Corporate bonds rate or returns range between 7 to 13 per cent approximately depending on the rating, issuer, and various other factors that determine the price of a corporate bond. A few corporate bonds to name include Piramal offering 11-11.50 per cent, L & T offering 7.50-8 per cent, and Shriram offering 8.50-9.5 per cent approx. return on the investment,” said Ankit Gupta, Founder, BondsIndia.com.

While investing in bonds one needs to be mindful of the interest rate cycle and maturity of the securities. This is because the interest rate and bond prices are inversely co-related. For example, if you hold a long-term bond with an interest rate of 10 per cent and if the interest rate goes up to 12 per cent, the value of your bond will reduce. The change in the price of the bond is based on interest rate movement. The longer the duration of the bond, the higher the impact on the bond price. But if you stay invested, at the end of the tenure you will get the coupon rate that was locked at the time of buying the bonds.

Is it a good time to invest in corporate FDs? “No, it is not the right time to invest in corporate fixed deposits. Corporate bonds offer better returns than corporate fixed deposits. It is always preferable to buy corporate bonds instead of corporate FDs because of three key reasons - First, it gives you relatively higher returns, second is the benefit of liquidity to liquidate your position whenever you want to, and third is the benefit of loan against corporate bond," said Gupta.

How are corporate bonds taxed? There is a probability of capital gain/loss if bonds are sold in the secondary markets before the completion of the tenure. For the interest portion, the taxability of the corporate bonds is applicable based on the individual tax slab rates.
Considering interest rates are peaking it seems the right time to buy corporate bonds, said Gupta.
Source: BusinessToday