Investment in Listed NCDs: 9% Plus Interest Options

Date of Post: 21/01/17

Last year has witnessed several Public issue of Non Convertible Debentures (NCD) by reputed companies. The renewed charge has been led by NBFC and Housing Finance companies who desire to bring down their borrowing from banks and in the process also decrease their average cost of funds. A review of these NCDs have been attempted to identifythe NCD Investment options that can give better returns  to the investors. 

These NCD issues have evinced good interest from retail and institutional investors due to Low interest rates offered by Banks and further expectation of lowering of interest rates in due course. This year has already witnessed three Public issues by Reliance Home Finance Ltd ( Rs. 3500 crore) , SREI Equipment Finance Ltd. (500 cr) and Muthooth Finance( Rs. 1400 crore). 

It is a known phenomenon and that in the initial period after listing, there is a selling pressure in NCDs and the yield offered is sometimes better than the original NCD issue which gets narrowed down over a period of time. The effective yield from these NCDS to an investor who purchases these NCDs from secondary market can be evaluated from it Yield to Maturity Ratio(YTM). 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.

Details of all important NCDs which have gone public from 2016 beginning along with Yield to Maturity  (YTM) Ratio is indicated in the Table below based in Market prices as on 20/01/2017 

NCD Name Coupon  Interest  Rating FV Mrkt price YTM ISIN NSE  Code BSE Code Issue Dt interest due on Redemption  on
SREI Infra  10 Annual AA+(BWR) 1000 1030 9.97% INE872A07UB7 SREINFRA Y1 935898 06-10-16 06-10-17 06-10-21
EHFL 10 Annual AA 1000 1069 9.72% INE530L07228 EHFLNCD N6 935788 19-07-16 19-07-17 19-07-26
IBUL HSG Fin 9.15 Annual AAA 1000 1021.9 9.26% INE148I08256 IBULHSGFIN NE 935868 26-09-16 26-09-17 26-09-26
DHFL TierII 9.25 Annual AAA 1000 1017.01 9.58% INE202B07IO3 DHFL NP 935840 09-09-16 09-09-17 09-09-23
DHFL TierI 9.3 Annual AAA 1000 1025.5 9.52% INE202B07HV0 DHFL NC 935814 16-08-16 16-08-17 16-08-26
MMFSL  9 Annual AAA 1000 1088 8.53% INE774D08MA6   935752 06-06-16 06-06-17 06-06-26
SEPL  9.75 Annual AA+(BWR) 1000 985.34 9.98% INE881J07EN8   935940 17-01-17 01-04-18 17-01-22
RHFL 9.4 Annual AA+ 1000 982.5 9.73% INE217K08289 RHPL N8 935916 03-01-17 03-01-18 03-01-32

Other than MMFSL(Mahindra & Mahindra Finance Ltd.) NCDs, which is ruling at YTM of  8.53, all other NCDs including the AAA rates\d ones of . DHFL (Dewan Housing Finance Ltd.) and India Bull Housing are giving  > 9% p.a. YTM

These 9% Plus p.a. NCD 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 NCDs can be seen as a means of diversifying ones investments and also satiate one’s desire for better yield. 

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