High Yield NCDs as Small Saving Rates go down

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  on 02-04-2017  
Name of NCD DHFL Tier I DHFL Tier II EHFL IBUL HSG Fin IBUL HSG Fin RHFL RHFL MMFSL 
Company Dewan Hsg Fin Dewan Hsg Fin Edelweiss Hsg Fin India Bull Hsg Fin India Bull Hsg Fin Rel. Home Fin Rel. Home Fin M&M Fin
NSE Code DHFL NC DHFL NP EHFLNCD N6 IBULHSGFIN NA IBULHSGFIN NE RHFL N6 RHFL N8   
BSE Code 935814 935840 935788 935860 935868 935912 935916 935752
Market Price 1056.00 1046.79 1097.22 1028   1003 1009.8 1105
Coupon Rate 9.30 9.25 10 9 9.15 9.15 9.4 9
Yield to Maturaity (YTM) 9.34% 9.36% 9.58% 9.29% Not Traded 9.46% 9.62% 8.53%
Type Secured  Secured  Secured Secured Unsecured Secured Unsecured Secured
Duration in Yrs /months 10 y 7 y 10 y 10 y 10 y 10 y  15 y 10 y
yrs Left for Matuarity 9.4 6.4 9.3 9.5 9.5 9.8 9.8 9.2
Trading Volume High High Good good Low High good High
Interest Frequency Annual Annual Annual Annual Annual Annual Annual Annual
Rating AAA AAA AA AAA AAA AA+ AA+ AAA
Face Value 1000 1000 1000 1000 1000 1000 1000 1000
FV  +accrued interest 1058.59 1052.17 1070.7 1046.62 1047.397 1022.6005 1023.218 1074.25
Allotment Date 16.8.16 9.9.16 19.7.16 26.9.16 26.9.16 3.1.17 3.1.17 6.6.16
Redemption   Date 16.8.26 9.9.23 19.7.26 26.9.26 26.9.26 3.1.27 3.1.27 6.6.26
Last interest  date 16.8.16 9.9.16 19.7.16 26.9.16 26.9.16 3.1.17 3.1.17 6.6.16
Next Interest Date 16.8.17 9.9.17 19.7.17 26.9.17 26.9.17 3.1.18 3.1.18 6.6.17
ISIN INE202B07HV0 INE202B07IO3 INE530L07228 INE148I07GL3 INE148I08256 INE217K07AG5 INE217K08289 INE774D08MA6
BSE ID 930DHFL26B 925DHFL23B INE530L07228 9IBHFL26B INE148I08256 915RHFL27B 940RHFL32B 9MMFSL26
CMP(NSE) 1056 1046.79 1097.22 1038   1003 1009.8  
CMP(BSE)   1047.5 1100 1028   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.

This Post Has 2 Comments

  1. AJIT SHARMA

    CAN YOU PROVIDE YTM OF TAX FREE PSU BONDS.

    1. [email protected]

      Suggestion Noted.
      Planning to do this as a separate post or have a separate page like ipoandmore.com/Bonds to cover NCDs and Bonds and will cover some PSU bonds (taxfree) there. may take some time. shall inform you by email as and when done.

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