Skip to main content

Non-Convertible Debentures - To Invest in New NCDs or old NCDs?

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Mutual Fund Application Forms

RETAIL non-convertible debentures (NCD), which took the debt market by storm last year, are back again, albeit at lower rates of interest. The retail NCD issues of at least two companies, Shriram Transport Finance and Religare Finvest, are expected to hit the market in the next few weeks, and the interest rates offered are expected to be in the range of 10.5011 per cent.

For those retail customers who already invested in NCDs last year or wanting to invest in one this year, how do these instruments fare?


What are NCD issues: Retail non-convertible debenture issues are debt instruments, just like corporate fixed deposits, where you invest some money with a company, and get back your investment after a certain period at a pre-fixed rate of interest. Investing in most NCDs is possible only through a demat account.


Check previous performance of issues: While basic factors like checking the credibility and credit rating of the issue is very important while subscribing, financial planners also advice investors to check the performance of previous issues by the company.

If a company say `ABC' is launching an issue offering NCDs at a face value of Rs 1,000, and the company's previous issue, offered at Rs 1,000, is trading at Rs 980, with interest rates on both being same, it may be wiser to buy the older issue in the secondary market, than buying the new issue. If the company's fundamentals are good and the trading value is low because of market conditions, it is a good reason to invest in the older issue as it is cheaper, he reasons.

How to compare two issues of the same company: The best way to compare is to check the present yield of the issues. Yield would be a product of the issue's face value, the premium or discount at which the NCD has been trading, and the coupon rate.

Assuming ABC's new NCD issue with a Rs 1,000 face value promises 11 per cent interest, and the company's previous issue of the same Rs 1,000 face value has been trading at Rs 1,010 with a coupon rate of 12 per cent. If you buy 10 debentures from the secondary market it will cost you Rs 10,200 and at the end of three years, assuming cumulative interest for three years, you will get back Rs 13,949 while that same Rs 10,100 invested in the new NCD issue bearing a 11 per cent coupon rate, will fetch you Rs 13,813.


Thus, the former gives you a compound annual growth rate of 11.36 per cent as against the 11 per cent offered by the latter.

Check the return option: One should also check the investment return option.
In payout type issues, the interest is paid out annually, and the investor can take back the investment at issue price, at the time of maturity. In cumulative issues, the investor takes home the accrued interest multiplied by the trading value of the NCD issues.

Since NCDs were very popular last year, and many of the companies that launched the issues, especially the gold loan companies, have been in trouble since, it is important to check the credibility of the company and rating of issues.

NCDs certainly offer more attractive returns and transparent pricing than bank fixed deposits. But, bank deposits are relatively safer. There have so far been no cases of defaults by NBFCs, but the business models of some of the companies with a single asset class may be risky. An issue with a credit rating of AA and above is advised.

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds        Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds     Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds    Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds             Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds              Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds             Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...
Read more

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...
Read more

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...
Read more

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
Read more

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Read more
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