Management of Private Gratuity Trusts
A small addendum – Use of DDB

Recently, after a long time, a deep discount bond (DDB) with tenure of 10 years, with AAA rating and 9.25% compounded annual yield has come to primary market – NABARD Bhavishya Nirman Bond. NABARD reserves right to vary the interest rate from time to time at the time of issue.

This makes an attractive opportunity for investment for various commercial and administrative reasons:

1. AAA rating by two rating agencies

2. A fair yield of 9.25% p.a.

3. Technically the interest gets automatically reinvested from day one. Hence, to that extent the interest income does not lie idle in bank account pending further investment

4. Till maturity/sale no further banking transaction, less accounting work

5. No put/call option (should be considered better for the Trust – refer next point)

6. The accounting at cost, though market value may be stated for disclosure purposes (shortfall may be required to be funded by the employer company, but not relevant for this exercise). The interest income may not be recognized for accounting purposes. This actively enhances the company’s annual contribution year after year. With the benefit of AAA rating and attractive yield, this may perhaps be the single most important criterion.

NABARD Bhavishya Nirman Bonds

10 Year Zero Coupon Bonds Salient Terms of issue

We recommend investment in the new NABARD Bonds in the PSU Bonds as well as Residue category of the Gratuity Trust investment pattern.

Please read the Offer Document carefully before investing.

The investment in Bonds is subject to various kinds of risks, such as interest rate risk, repayment risk, etc.

Disclosure of Interest

The Recommendation hereabove is on merits of the terms of issue of the said Bonds. We do not have any personal interest in recommending these Bonds.