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

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...
Read more

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...
Read more

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...
Read more

Kisan Vikas Patra - KVP

  Kisan Vikas Patra (KVP) First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months). KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000. The minimum purchase value for the KVP is Rs.1000. There is no maximum limit. KVPs are available at all departmental post offices across India. These certificates can be prematurely encashed after 2 ½ years from the point of issue. KVPs can be transferred from one individual to another and from one post office to another. ----------------------------------------------------- Inve...
Read more

Mutual Fund Review: Reliance Regular Savings Equity

    Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns   In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%).   When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...
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