Listed NCDs

In the scenario of plummeting interest rates and the Recent cut announced byGovernment across the board in small saving schemes, investors can consider taking some exposure to Listed Non Convertible Debentures ( Listed NCDs) by reputed companies. In the current scenario there is enough reasons for investors to scout for NCDs to increase his overall returns while still retaining a degree of safety. NCDs help to protect investors for vagaries of stock markets where returns are not guranteed.

New Small Saving Rates

The government on 31/03/17 cut interest rate on small savings schemes such as PPF (public provident fund), Kisan Vikas Patra and Sukanya Samridhhi Savings Scheme by 10 bps or 0.1 percent. The new rates are applicable for April-June quarter. This will have a marginal impact on investors who depend on interests income from small saving schemes. The new rates are:

Small Saving Interest Rates

Non Convertible debentures of reputed companies that either come in from a public issue of NCDs or can be purchased from NSE/BSE at quoted rates, present an alternative way to earn slightly higher return than small savings schemes and Bank FDS. However they are not as safe as Post office / bank and carry certain element of risk. The Rating like AAA or AA indicate the degree of safety of principal and interest payments on these debentures and one can make a judicious selection of these NCDS to enhance his return and maintain adequate safety.. 

Apart from rating investors should look at the calculated Yield to Maturity Ratio(YTM) when buying these NCDs from secondary market. In case of a fresh issue, the YTM is same as the coupon rate. Subsequently the YTM for a bond is the total return, interest plus capital gain, obtained from a bond held till its maturity. It is expressed as a percentage and tells an investor what his return on investment will be if he purchases the bond and holds on to it until the redemption of the bond. It takes into account the accrued interest on the bond, interest payments on future and resulting capital gain or loss depending on whether the purchase price is more or less than the face value of the bond. 

Information & YTM of some Select Listed NCDs (Date of Post: 02/04/17)

Details of some Listed NCDs (Mostly new issues in past one year)  along with Yield to Maturity  (YTM) Ratio based on closing prices of these bonds on NSE /BSE as on 31/12/17 is indicated. ( In all these Listed NCDs interest payment frequency is Annual).

As  on02-04-2017 
CompanyDewan Hsg FinDewan Hsg FinEdelweiss Hsg FinIndia Bull Hsg FinIndia Bull Hsg FinRel. Home FinRel. Home FinM&M Fin
BSE Code935814935840935788935860935868935912935916935752
Market Price1056.001046.791097.221028 10031009.81105
Coupon Rate9.309.251099.159.159.49
Yield to Maturaity (YTM)9.34%9.36%9.58%9.29%Not Traded9.46%9.62%8.53%
TypeSecured Secured SecuredSecuredUnsecuredSecuredUnsecuredSecured
Duration in Yrs /months10 y7 y10 y10 y10 y10 y 15 y10 y
yrs Left for Matuarity9.
Trading VolumeHighHighGoodgoodLowHighgoodHigh
Interest FrequencyAnnualAnnualAnnualAnnualAnnualAnnualAnnualAnnual
Face Value10001000100010001000100010001000
FV  +accrued interest1058.591052.171070.71046.621047.3971022.60051023.2181074.25
Allotment Date16.
Redemption   Date16.
Last interest  date16.
Next Interest Date16.
CMP(NSE)10561046.791097.221038 10031009.8 
CMP(BSE) 1047.511001028 1005 1105

Other than MMFSL(Mahindra & Mahindra Finance Ltd.) NCDs, which ruling at YTM of  8.53%, all other NCDs including the AAA rates ones of DHFL (Dewan Housing Finance Ltd.) and India Bull Housing Finance are giving  > 9% p.a. YTM.

These 9% Plus p.a. Listed NCDs present good opportunities though they are not as safe as bank FD even though AAA rated instruments carry high degree of safety. A small investment in these Listed NCDs can be seen as a means of diversifying one’s investments and also satiate one’s desire for better yield. 

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk. WhileI have made lot of efforts to collect correct information, same may be rechecked by individuals while investing.