This refers to the news report “Grey market comes of age; bets on big gains from SBI bonds” (February 22).
Grey market operations are attractive for those who may be looking for short-term gains; retail investors, particularly senior citizens, have to weigh all the pros and cons before investing their money.
First, the interest earned from bonds is fully taxable. Second, there are several public sector banks offering the same or even better rates of interest on their long-term deposits for a similar time frame — however, these are also taxable. For instance, Canara Bank offers an interest rate of 10.5 per cent to senior citizens on an eight-to-10 year deposit (against SBI’s 9.95 per cent on bonds that are redeemable after 10 years). State-owned Corporation Bank offers an interest rate of 9.8 per cent to senior citizens on a five-year deposit (SBI offers a 9.75 per cent interest rate on a five-year redeemable bond). Though SBI bonds may be available for resale in the secondary market, it won’t be easy to execute the order unless the amount is reasonably large, besides involving brokerage. At the same time, loans against bank deposits are available to meet short-term needs and there is a facility for pre-mature withdrawal of the entire corpus. Finally, there is a good chance that interest rates on bank deposits will be raised before March-end.
S Ravindranath, Coimbatore
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