FDs losing fizz, investors lap up NCDs off the Street

Mumbai: Investors, worried about the fall in income from fixed deposits due to low interest rates, are turning to non-convertible debentures (NCDs) in the secondary markets, which could yield anything between 7.75% and 10%, depending on the quality of the paper and time left to maturity .
The rush to get NCDs from companies, such as NTPC, Indiabulls Housing, L&T Infra, Dewan Housing and Sriram Transport, has accelerated of late even as the country's largest bank, State Bank of India, reduced rates on longer tenure fixed deposits by as much as 50 basis points to 6.25%.“Retail investors who are not under the highest tax bracket p can look to invest in taxable bonds listed on the exchanges,“ says Deepak Jasani, head of retail research at HDFC Securities.
The bonds score over fixed deposits because they offer higher yields and are liquid as investors can buy or sell them on stock exchanges. Also, there is no tax deduction at source if they are held in the demat form.
Wealth managers suggest in vestors to buy bonds based on their requirements and liquidity .For example, with a three-year time frame, you may buy an NCD maturing in 2020. But if you are ready to wait for 8-10 years, you may buy bonds maturing in 20252027. Depending on your cash needs, you could opt for NCDs that offer monthly , half-yearly or yearly interest payment.
Some of the popular series of bonds in the secondary market are the 8.49% NTPC N7, the 9% Mahindra Financial Services NCD and the 9.3% Dewan Housing NCD. The NTPC bond maturing in March 2025 trades at Rs 13, giving a yield of 7.9%, while the Mahindra NCD maturing in June 2026, trades at Rs 103.2, giving a yield of 8.41%. Similarly, the Dewan Housing NCD maturing in August 2026, trades at Rs 100.95, giving a yield of 9.14%.