The ICRA rating rationale states that rating for the Basel III compliant Tier I bonds is four notches lower than the Basel III complaint Tier II bonds of the bank as these instruments have the following loss absorption features that make them riskier.
Till date, no long term instrument rated AAA by CRISIL has ever defaulted. For instruments rated AA, the average 3-year default rate is less than 1 percent, which means if you hold an instrument rated AA+ or AA or AA- for 3 years, on an average, the incidence of default has been less than 1 percent.
In India, the initiation of the committee process was expected to make policy rate decisions more scientific, more debated and bias-free.
For retail investors intending to purchase bonds in lot size of say few lakh rupees, when there is no primary issue available or the primary issue is not matching up to the risk-return profile expected, one should go for purchases in the secondary market.
Preference shares depict features of bonds when one looks at risk-return profile.
The acceptability of these bonds is increasing gradually as more financial institutions and HNIs are taking exposure.
Bonds offer interest and capital appreciation to investors. It is better to know the basis of taxation and the rate of tax.
This article explains how bond funds can be used to optimise post tax returns on fixed income portfolios.