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    Are these NCDs better than liquid mutual funds, fixed deposits?

    Are these NCDs better than liquid mutual funds, fixed deposits?

    Are these NCDs better than liquid mutual funds, fixed deposits?
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    By Bivekananda Biswas   IST (Updated)

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    Shriram Transport Finance and Tata Capital Housing Finance have launched non-convertible debentures (NCDs) with an issue price of Rs 1,000 each.

    Shriram Transport Finance and Tata Capital Housing Finance have launched non-convertible debentures (NCDs) with an issue price of Rs 1,000 each.
    The Shriram Transport Finance issue opened on January 6 (Monday) and is scheduled to close on January 22, while Tata Capital Housing Finance NCDs will be available for subscription from January 7 to January 17, 2020.
    Through these issues, Shriram Transport Finance will raise Rs 1,000 crore and Tata Capital Housing will collect Rs 2,000 crore from the market.
    Both the NCDs have been rated high by credit rating agencies. The Tata Capital Housing Finance NCDs have been rated 'AAA' by CRISIL, as well as, ICRA.
    The Shriram Transport Finance NCDs have been rated ‘CARE AA+; Stable’ by CARE Ratings, ‘CRISIL AA+/Stable’ by CRISIL Limited and ‘IND AA+: Outlook Stable’ by India Ratings and Research Private Limited.
    NCDs are the debt instruments with a fixed tenures, issued by companies, and people who invest in these receive regular interest at a certain rate.
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    Besides that, these NCDs are offering higher interest rates than fixed deposits offered by the banks and debt mutual funds. In recent months, banks have reduced interest rates on their deposits and now offer less than 7 percent for various terms, while these NCDs are offering investors more than 8.1 percent. Therefore, the interest rate differential is 1-2 percent.
    Tata Capital Housing Finance is offering interest rates between 8.1 percent and 8.7 percent for the tenure between three years and 10 years.
    The investors can opt for three, five, eight and 10 years tenures. On investment for three years period, the investors will earn 8.1 percent. For five, eight and 10 years, the interest rates will be 8.3 percent, 8.4 percent and 8.7 percent, respectively.
    Shriram Transport NCDs will have options of investment tenures such as three and five years with monthly, annual and cumulative interest payment options and seven years with monthly and annual interest payment options.
    For monthly interest payment options, having tenure of three, five and seven years, the monthly coupon will be 8.52 percent, 8.66 percent and 8.75 percent per annum, respectively.
    For annual interest rate payment options, having tenor of three, five, and seven years, the coupon rate will be 8.85 percent, 9 percent, 9.10 percent per annum, respectively.
    However, these bonds hold certain risks. In case of default, holders of NCDs will be the last ones to be paid by the company.
    Sebi-registered investment expert Jitendra Salonki said that these two NCDs were high-rated, therefore, they were safe.
    “From the security point of view, Tata Capital Housing Finance rating is higher than Shriram Transport Finance. However, Shriram Transport Finance has shown good track record in its earlier issues. The interest rate offered by the latter is bit higher. The differential is about 0.4 bps. The investors should go for Tata Capital Housing Finance, as the company has good rating, as well as, credibility.”
    Mumbai-based tax and investment expert Balwant Jain said Tata Capital Housing Finance NCDs were quite safe, as these were AAA rated.
    “As interest rates are going down, investing in these NCDs, investors can earn better interest. This is also a safer bet for senior citizens who need regular income. Considering the reputation and rating of Tata Capital Housing Finance, I recommend to investors who do not want to take much risk.”
    Those who invest their money in bank FDs may lock their money here, said Jain. These NCDs also offer better return than Bharat Bond ETF which was launch in December. Bharat Bond ETF offers 6.3 percent and 7 percent for tenure of three years and 10 years, respectively.
    How to buy Tata Capital Housing Finance, Shriram Transport Finance NCDs:
    One can buy these NCDs through Demat accounts or through investment firms. Investments in these NCDs will have liquidity as they will be listed on the exchanges. An investor will be able to liquidate whenever they want by selling in the open market.
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