INSUBCONTINENT EXCLUSIVE:
NEW DELHI: With the equity market turning sluggish and IPO mart taking a breather, the high-yielding NCDs are creating some buzz among
investors.
The Rs 12,000 crore NCD issue of DHFL received subscriptions worth of Rs 10,000 crore on the very first day
through NCD issues so far this calendar
Market watchers say the rates are attractive, especially for investors in low income tax brackets and senior citizens, who wish to secure a
regular income.
However, they feel that investors should take interest rate risks and their own liquidity positions into account before
investing in such issues.
The ongoing offerings promise effective yields of up to 9.75 per cent on long-term maturities
DHFL is offering a coupon rate of 8.9 per cent over a three-year tenure, which goes up to 9.10 per cent over 10 years
The NBFC is also offering to pay an additional 0.10 per cent interest to senior citizens.
Besides, an additional interest rate of 0.5-1 per
cent is payable along with last interest payment
The NCD also offers investors to opt for monthly, annual or cumulative options.
JM's NCD is offering a higher 9.25 per cent rate on the
38-month paper, 9.5 per cent on the 5-year one and 9.75 per cent over 10 years
If the investment horizon is of shorter duration, then investors may be exposed to interest rate risks
Liquidity is another concern
Srivastava, Chief Investment Officer for Debt at Sundaram Asset Management.
The rates are 200-275 basis points higher than what bank fixed
deposits offer.
Should retail stock investor flock to NCDs and other fixed income products
Analysts say if an equity investor is looking at
such schemes, which are of longer tenure, s/he should also take into account the outlook for equity not in the short term but for the long
The BSE Sensex has risen just 2 per cent this calendar and many brokerages have modest year-end targets for the index.
Viral Berawala, CIO,
Essel Mutual Fund, said that while the NCDs look attractive, given that the domestic interest rate cycle is likely to move upwards in the
foreseeable future, it may be worthwhile for investors to delay their investments and obtain better coupon rates later on
Srivastava advised retail investors to understand the businesses and their underlying portfolios first
Rating is another criterion as issues with high ratings offer a higher degree of safety.
The monthly payout options, particularly, look good
for senior citizens looking for regular incomes, he said.
