Alternatives To Substitute Bank Deposits For Russian HNWIS

Alternatives To Substitute Bank Deposits For Russian HNWIS

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The interest rates have constantly been decreasing by the Central Bank of Russia from January 2015, which has inevitably caused low level of bank deposit rates. In particular, now one may have around 6-8% in RUB and around 0,5-1% in USD and EUR. Given the fact that the FED has been targeting at 2% inflation, expected investment return should be not less than 3% to cover inflation and show some grown. What instruments should be using HNWIs in Russia to preserve their capital in USD and EUR and have a regular income like bank deposits provide?

Bonds. If one’s investment term exceeds 3-5 years, one could find investment grade bonds with a yield to maturity of 3% and a bit above to invest in. For conservative investors, it may be prudent to select senior (not subordinated), nor hybrid or convertible or perpetual bonds that have lower volatility and lower credit risk of their portfolio.

Loan notes. These are typical for developers as a bridge loan option. Typically, they won’t be trading on a stock exchange, but nevertheless, they might substitute bank deposits as they provide regular coupons and pay back 100% of investment amount when mature provided there is no default. They are not as liquid as bonds, but their coupon rate sometimes exceeds 6-7% p.a.