Thread by @avasthiniranjan

Is this a right time to invest in #BharatBond ETF?

A frequent question in minds of many investors. When it comes to investing in debt, yields matter. It is always ideal to lock investments at higher yields.

Moot question is, at what level can we say it is high.

1/n

There are some ways to guage whether interest rates at which you are investing are good enough levels.

Let's see them one by one in context of current Nifty #BharatBond index yields.

Currently the index yield in 10yr is ~7.75% and in 3 yr ~6.83%

1/n

When we compare these yields with RBI policy rate which is at 5.15%, then 10 year yield (7.75%) is 2.6% above repo rate and 3 year yield (6.83%) is 1.68% above repo rate.

These levels are well above last 5 year average spreads.

Even if we consider that RBI hikes repo rate by 50bps - which is unlikely in the next 1 year at least given that growth is lingering at multi year low - the spreads are resonable and provides enough cushion.

Usually it is very difficult to predict RBI policy stance and time it.

If you compare Nifty #Bharatbond index yields with current FD rates they are almost 75 to 150 bps higher on gross basis. If we add indexation benefit, then post tax they are ~200 bps higher on net basis.

Given that RBI is focused on transmission, FD rates may fall further.

Another point is to compare current spreads with historical average.

In last 10 yr, the 10 yr PSU bond yield spreads over Gsec have averaged around 0.92% vs current spread of 1.20% and 3 yr PSU bond yield spreads have averaged around 0.94% vs current 0.75%.

With this we can conclude that yields are at reasonably high levels if not at their peak.

Having said that, we can't predict which way interest rates move in future. Our past track record in predicting rates is bad. 🙂

It shall be wise to not try and time interest rate movement, but invest now given that yields have already gone up.

The beauty about #BharatBond is, if you invest today and yields go up, you can average out your entry yield by investing more later. If yields fall you win.

Waiting for yields to go up is like waiting to catch the next fast train which may or may not come.

Instead, you can board the current train and still have a chance to catch the fast train on next station. If it comes, you won't miss it.

Happy Investing!
#BharatBond