Executive Summary: NCDs are fixed income and fixed tenure instruments. Investors get interest income. It is taxed as per tax slab applicable to them. Look at the key features of the NCD issues of Tata Capital and JM Financial. NBFCs are in the news for investment risks and default of payment. Analyze all information thoroughly before investing. Gilt funds and debt funds are alternate investment options which invest in fixed income instruments and are managed professionally.
NCDs or Non-Convertible Debentures are issued by companies when they want to raise funds. Investors can buy these NCDs in return for interest income.
Features of NCDs
Features of NCDs
- They are bonds with a fixed interest rate.
- They have a specific tenure
- Some NCDs are secured against company assets and some are not.
- They cannot be converted to equity
- NCD investors do not have ownership rights like equity shareholders.
Many companies are opening NCD issues for subscription. Here, we look at they key features of two such issues – JM Financial Products NCD and Tata Capital NCD.
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Particulars
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JM Financial Products NCD
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Tata Capital NCD
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Issue Open and Close
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Aug 6 – Sep 4, 2019
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Aug 13 – Aug 23, 2019
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Price /Face Value of Bond
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₹ 1,000 each NCD
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₹ 1,000 each NCD
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Category
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Secured NCDs
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Series 1, 2 and 3 are secured.
Series 4 is unsecured |
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Tenure Options
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5 Options available with tenure from 38 months to 64 months
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4 Series available with tenure from 3 years to 10 years
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Interest Rate
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Ranges from 9.85% p.a. to 10.30% p.a.
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For HNI and Retail Investors 8.45% p.a. To 8.85% p.a.
For Institutional and Corporate Investors 8.35% p.a. To 8.75% p.a. |
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Minimum Application
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₹ 10,000
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₹ 10,000
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Rating
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CRISIL – AA/stable
ICRA – AA |
CRISIL – AAA/stable
CARE – AAA/ stable |
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Taxability of Income
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Add interest income to total income. Pay income tax based on tax slab applicable
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Add interest income to total income. Pay income tax based on tax slab applicable
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Should You Invest?
The interest rate is competitive. JM Financial offers higher interest but Tata Financials has better credit rating. But there could be risk of default. Therefore it is better to stick to secured NCDs if you are planning to invest in these NCDs. It might be better to go for the shorter term NCDs as the rating can change over a period of time. If you do want to consider investing in NCDs, invest a small part of the money that is not required in the short-term. Check factors such as the company performance and its financials.
Off late, NBFCs are considered risky for investments. The government has proposed some steps in the Budget to revive NBFCs from their liquidity and credit crisis. But it has to be seen, how it works. Moreover if you fall in the highest income tax slab, the post-tax returns are not that attractive.
If you are looking for low risk investments, gilt funds and debt funds are useful options. Gilt funds and debt funds invest in fixed income securities. Well managed and good performing funds provide consistent and optimum returns.
The interest rate is competitive. JM Financial offers higher interest but Tata Financials has better credit rating. But there could be risk of default. Therefore it is better to stick to secured NCDs if you are planning to invest in these NCDs. It might be better to go for the shorter term NCDs as the rating can change over a period of time. If you do want to consider investing in NCDs, invest a small part of the money that is not required in the short-term. Check factors such as the company performance and its financials.
Off late, NBFCs are considered risky for investments. The government has proposed some steps in the Budget to revive NBFCs from their liquidity and credit crisis. But it has to be seen, how it works. Moreover if you fall in the highest income tax slab, the post-tax returns are not that attractive.
If you are looking for low risk investments, gilt funds and debt funds are useful options. Gilt funds and debt funds invest in fixed income securities. Well managed and good performing funds provide consistent and optimum returns.
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