Bank deposits have been a letdown for many investors owing to their low-interest rates. This is despite many banks announcing higher interest rates on their fixed deposits. Investors eyeing higher interest rates on fixed-income investment options other than bank deposits can now look forward to non-convertible debentures (NCDs) issued by four prominent lenders in the non-banking category. These include Muthoot Finance, Indiabulls Housing, Edelweiss Housing Finance and Ugro Capital which have launched their NCDs earning returns between 6.75-10.4 per cent depending on the investment tenures. However, financial advisors do not recommend investors to park their entire savings in these NCDs as they do not enjoy an AAA rating.
These NCDs are tenured between 18 months and 10 years. Investors looking forward to investing in these NCDs must have Demat accounts as these investment options are listed on stock exchanges. Many investors are warming up to these instruments owing to their high-interest rates and no taxes deducted at source (TDS) unlike FDs wherein one loses out both on interest income and tax deductions.
Currently, Muthoot Finance is the top pick among the investors inclined to go beyond fixed deposits in the fixed income instruments sector. Though not all financial advisors advise in favour of these NCDs, Anup Bhaiya, Managing Director, Money Honey Financial Services said, “Conservative investors looking for a strong business model and higher rating but comfortable with lower rates can make some allocation to Muthoot Finance.”
Ankit Gupta, Co-founder, of Bondsindia.com has a different take on these NCD investments. Gupta said, “To increase the overall yield in your fixed-income portfolio, you one can invest one-third of the money in less than AAA-rated paper. Within this allocation, you could have a maximum of 4-5% allocation to a single company” adding how investors must avoid investing in public issues of companies where the same paper gets sold at higher yields in the secondary market.
To those investors for whom nothing matters beyond interest rates, Gupta recommends investing in Ugro Capital though the inherent risk is higher in these investments.
The NCDs are available for investment tenures of up to 10 years, though investors must try to limit their risk exposure by parking their money in them for not more than five years. Deepak Jasani, Head of Retail Research, HDFC Securities said, “Interest rates are slated to rise further, so investors can space out their investment over the next few months. Tenure of 24-48 months is preferred especially when the interest rates have not peaked as yet.”
Disclaimer: This article is not an investment advice. Please consult with a financial advisor before investing.