Skip to main content

Bank fixed deposits are a better bet than debentures

STANDARD Chartered Bank's alleged sale of debentures to its private banking clients with an illegal buyback option has put the spotlight on debentures.

Issuing debentures is one way by which companies raise loans for themselves. Although the money raised by it becomes a part of the company's capital structure, it does not become share capital. Those who buy debentures are repaid the amount, along with an interest.

Typically, when the capital markets are down and companies find it difficult to raise cash from the equity markets, they would tap alternate sources such as debentures and corporate bonds.

Companies find it cheaper to issue debentures, since it does not require any registration cost, like bonds do.

There are different types of debentures, including non convertible debentures (NCD), partly convertible debentures, fully convertible debentures and optionally convertible debentures.

Typically, debentures come with some guarantee — either on returns, both on the lower and higher side, or of capital/principal protection. Standard Chartered Bank officials had promised to buyback the debentures from its wealth management customers.

Like bonds, debentures come with ratings by credit rating agencies. Mostly, higher the rating, better the company and safer the investment.

But the safety might lead to capped returns. So, riskier the company, higher the interest it would offer investors. For instance, last year saw some realty companies offering as much as 1820 per cent for their NCDs. Investment experts, and even the Reserve Bank of India, have been raising doubts about sound financials of the realty sector.

Some debentures are stock market-linked and are generally issued by banks and portfolio managers, like a Nifty linked debenture. Most portfolio management services' managers offer the product to their clients.

Most investors in this avenue are high net worth individuals. This product is not advised for retail investors because it is more risky and retail investors may not understand the product. Also, debentures are highly illiquid with one's investment being blocked until the term ends.

Debentures are safer than corporate bonds, but less safe than a bank fixed deposit (FD). Also, here you are taking a bet on one company and the risk of default remains. For retail investors, FD is a better bet in the current high interest rate regime, where banks are giving up to 10 per cent on one-year FDs. Therefore, do not get lured by high rates on debentures.

Popular posts from this blog

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...

Health for Wealth - How to buy Health Insurance ?

Tax Saving Mutual Funds Online Current open Infra Bond Application form   HEALTH insurance is a relatively new phenomenon in India. Hence, it is not on the top of the mind for most people to make a conscious commitment towards health insurance. However, it is imperative for each one of us to plan for better health for our families and ourselves. There's no better way than to start with making health your top priority this year. So, your health insurance resolution charter would look something like: ■ Invest in health for wealth: Timely investment in health insurance can help build a security net and hedge sudden dilution of another financial asset class in the event of a health emergency, making it imperative to opt for a comprehensive health insurance plan. ■ Buy a comprehensive health cover that fu lfills your health needs for life: Buy a personal health insurance cover even if you have an employee cover because 'employer provided' health insuranc...

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...
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