Skip to main content

Check rating of issue before buying NCDs

 

AT TIMES, where inflation hovers above nine per cent and stock market returns are unstable, it is important for an investor to park his funds in avenues that would provide higher returns to combat the inflationary effect on investments. For those looking at fixed and safe rates of returns, fixed deposits in banks and non-convertible debenture (NCD) by companies are good options to consider.

Shriram Transport Finance has recently announced a NCD issue in which it promises returns of 11 per cent and above.

Since many more such retail NCD issue are waiting to hit the markets in the months to come, it is important to know how NCDs fare as investment avenues compared to fixed deposits.


Check the ratings of the issue: Companies come out with a bond issue if they need capital but cannot or do not want to borrow it.


Hence, they offer higher interest rates. An investor has to look for the rating of the issue. If an issue is rated AA or AAA and offers a 11 per cent interest it is better to go for it than another issue which is rated B and offers 13 per cent interest. Investing in an issue which is rated badly may cause a delay or even a loss of capital

No tax benefit: Like bank FDs, one cannot get any tax benefit by investing in NCDs.

Longer lock-in period: The 10.50 per cent interest rate on fixed deposits (FDs) are available for bank deposits of one-year tenure and above. However, in the case of NCDs, they come with tenure of three, five and seven years. So an investor has to know what his investment horizon is before going in for such long-term issues. We are nearing the peak of the interest rates and it is good to invest in a long-term debt fund that offers a 11 per cent rate is good.


Trading of NCDs: Despite the longer tenure it is still possible to liquidate an NCD investment, if it is tradeable. The tradeable NCDs would be listed on the stock exchanges and one could sell them whenever one feels that the value of NCD has appreciated to the level expected. But experts say that it is rare as retail debenture trading has not really picked up in India. So, even if an investor wants to sell off his debentures there has to be a buyer.


How to apply for an NCD?


Most NCDs mandate having a demat account to subscribe to an NCD issue. For the subscriber too it is easier as the NCDs can be sold off online when one wants to liquidate them.

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now