How safe is ‘safe’ debt? | business | Hindustan Times
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How safe is ‘safe’ debt?

Today, all debt funds ranging from ultra short-term to medium-term instruments are generating returns between 7.4 per cent and 8.9 per cent.

business Updated: Jun 20, 2008 22:02 IST
HT Correspondent

Today, all debt funds ranging from ultra short-term to medium-term instruments are generating returns between 7.4 per cent and 8.9 per cent while bank fixed deposits and post office term deposits generate returns between 8 and 9 per cent. Thus none of the debt instruments safeguards investor’s interests in this high-inflation environment.

The real interest rate (nominal rate-inflation) for all debt instruments runs into negative. A one-year term deposit with the State Bank of India (SBI), for instance, earns 7.5 per cent. At inflation of 11 per cent the real interest stands at –3.5 per cent. Which means that an investor, instead of gaining interest on his capital, is losing his capital itself.

“Equity is the only investment avenue that can fight such high levels of inflation, and gold can act as a hedge,” said financial planner Veer Sardesai.