Banks have an excess of liquidity. Because of this, they have reduced the interest rates on FD significantly. At some places, these interest rates have reached the normal deposit rates. So investors are withdrawing money from bank FDs and putting them into perpetual bonds. FDs on these bonds of banks are getting two and a half per cent higher returns. In fact, perpetual bonds are bonds that have no date of maturity. Although there is some risk, but it can also be bought back. Generally, after five years of issuing a bond, the option of buyback is allowed to be exercised.
Can buy perpetual bonds in stock market?
Perpetual bonds are listed on the stock market. Investors can buy and sell these bonds in the stock market. Actually companies or banks that require money for a long period issue such bonds. However, investors should take care of liquidity, interest rates and credit rating. Many times, large companies or banks default and investors’ money is lost. In the past, Yes Bank could not provide money to its perpetual bond buyers. After this, the trend of investors in perpetual bonds had decreased. But now the trend of investors is being seen once again.
Opportunities for big investors but risks also exist
However, small investors should keep a distance from it. This is a profitable deal for rich investors because the returns of more than one and a half to two per cent also become quite a big amount for them. By the way, the advice of experts to big investors is that they can make good profits from perpetual bonds. Not being able to return investors’ money from Yes Bank can be an exception. This situation cannot happen with most banks and companies. Many banks have said that they can raise money from perpetual bonds soon. In such a situation, those investors will have a chance to earn good returns.
Source: ABP News