But watch out for the issuer’s credit ratings in the upcoming issuances, especially if looking at tenure of more than 3 yrs
According to reports, other non-banking finance companies that are likely to raise money include Muthoot Finance, Srei Equipment Finance, IL&FS Transportation, all of whom are likely to hit the market in January.
In comparison, State Bank of India offers 7.05 to 7.1% for one to two years FDs. Typically a ÁAA’ rated NCD would give 0.5% more than FDs and a ÁA’ or ÁA+’ offer 1.5-2% higher than FDs.
In the current benign or slow interest rate scenario, retail investors — especially those who depend on fixed income returns like pensioners, would find the NCD rates attractive. But one must be cautious about the spreads and hence credit rating of the issuer critical, says Mimi Partha Sarathy, founder Sinhasi Consultants.
‘‘As a financial advisor, we don’t advise investment in NCDs below ‘ÁAA’ or ‘ÁAA+’ ratings. In the current environment where corporate India is going through a challenging scenario investors must be careful if the spreads on such instruments are too high,’’ she says.
The credit worthiness of the issuer assumes more significance in the case of longer term investments of more than three years, points out Anil Rego, founder of Right Horizons Wealth Advisors. ‘Äpart from credit ratings, investors must also look at the group or company issuing the bond. While it would make sense to lock into highest rate available for the long term, given that interest rates are likely to come down further, predicting credit worthiness over a longer-term period becomes difficult,’’ he says.
Even though the NCDs would be listed instruments, redeeming them before maturity would be tough because liquidity may not be very high. As a precaution, investment in NCDs should not exceed 5-10% of your overall portfolio and 15-20% of the debt portfolio. Also, make sure you diversify your NCD portfolio.
By Priya Nair