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. JM Financial Credit Solutions Rs 750 crore NCD issue kicked off on Friday and saw good demand traction.
At least five other companies have successfully raised funds 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. It is offering monthly options on 5-year and 10-year papers.
“One should look at the investment horizon. If the investment horizon is of shorter duration, then investors may be exposed to interest rate risks. Liquidity is another concern. That said, the rates look attractive for people who are in the lower income tax brackets, and for senior citizens,” said Dwijendra 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 term. 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.