The 10-year bond yield in America has gone past 4.9 percent and it is at its highest level in almost 16 years. Similarly, the two-year bond yield has reached a 17-year high there. In India, the 10-year government bond yield is around 7.35 percent. That means the difference between American and Indian bond yields is only about two and a half percent.
Can you invest in US bonds?
The answer is yes. We can also take advantage of returns by investing in American bonds. Companies or corporates raise loans from common people through bonds. The return received on this bond at the market rate is called yield. Apart from the yield, one advantage of investing in American bonds is that US bonds pay interest or returns in US dollars.
The dollar appreciates by 3 to 4 percent against the rupee in a couple of years. That is, if the yield now is around 5 percent and after one year you get the benefit of currency appreciation of up to 3 percent, then, the total return can be above 8 percent, which maybe more than many Indian bonds.
Indian investors can invest in US treasury bonds through exchange traded funds i.e. ETFs. Similarly, there are many fund of funds of Indian mutual companies, by investing in which you can take advantage of the rise in American bond yields.
For example, Bandhan Mutual Fund recently changed the name of India’s first US Debt (ETF) Fund to Bandhan US Treasury Bond 0-1 Year Fund of Fund. It is an open-ended fund of funds, which invests in foreign index funds and ETFs.
Aditya Birla SunLife Mutual Fund has also launched Aditya Birla Sun Life US Treasury 1-3 Year Bond ETFs Fund of Funds. Additionally, you can open a brokerage account for the US market through a fintech platform and invest in bond ETFs there.
You can also invest in treasury bills, corporate bonds and treasury bonds in the US secondary market through these brokers.
Certified Financial Planner Jitendra Solanki says that investing in foreign markets is a good idea for diversification. Bond prices move inversely to the yield i.e. when bond prices fall, yields rises and when prices rise, yields fall.
Solanki says that the rise in American bond yield means that when it changes its direction, there will be an opportunity to earn good returns, but one should be very cautious while investing in the foreign market. Sometimes circumstances turn unfavourable…
This investment also has a cost. The return depends on the bond market of the country in which the investment is made.
Not only this, if an Indian sends more than Rs 7 lakh to America, then a 20% TCS is levied.
Apart from this, foreign brokerage also has its own commission.
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