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

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...
Read more

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...
Read more

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...
Read more

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Read more

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
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