Which NCD Offers the Highest Returns on Investment?

When maximizing returns on investments, non-convertible debentures (NCDs) have emerged as a popular choice among investors looking for higher income with manageable risk levels.

Here’s a rundown on some of the NCDs currently offering the highest investment returns and how to pick the best NCD to invest in for your portfolio.

What Makes NCDs Attractive?

NCDs are fixed-income instruments that corporations issue to raise long-term funds. They are known for offering higher interest rates than traditional fixed deposits and are available through public issues for tenures, ranging from one to seven years. Selecting the best NCD to invest in, based on thorough research and strategic considerations like credit ratings and YTMs, investors can maximize their returns while managing associated risks.

Choosing the Best NCD to Invest in India

To make an informed decision, consider the following aspects:

1. Assessing Credit Ratings

The safety of an NCD largely depends on the issuer’s creditworthiness, reflected in its credit ratings. Opt for NCDs with higher ratings, such as ‘AA’ or ‘AAA,’ indicating a lower default risk. For instance, firms like Tata Capital, Mahindra Finance, and Shriram Transport Finance have been rated highly by agencies like CRISIL and ICRA, ensuring the reliability and security of your investment.

2. Yield-to-Maturity (YTM) Considerations

YTM is a critical factor as it indicates the expected return on an NCD if held until its maturity. Compare the YTMs offered by various NCDs to identify the ones that offer the best return potential. High YTM often correlates with higher returns, but weighing it against the associated credit risks is important.

3. Market Conditions and Interest Rates

The prevailing economic environment and interest rate scenarios play a significant role in NCDs’ performance. New NCD issues might offer higher yields in a rising interest rate environment. Keeping an eye on market trends can help you choose an NCD that will likely perform well.

4. Liquidity and Secondary Market Activity

NCDs that are actively traded on stock exchanges provide better liquidity, making it easier to buy or sell without significantly impacting the price. For example, NCDs issued by well-known companies like Indiabulls Commercial Credit and Tata Capital Financial Services are frequently traded, offering good liquidity.

High-Return NCD Options

Here are some of the NCDs that currently offer the highest investment returns based on their ratings, yield-to-maturity (YTM), and liquidity factors:

1. Indiabulls Commercial Credit

Issuer: Indiabulls Commercial Credit Ltd, a subsidiary of Indiabulls Housing Finance Ltd.
Rating: [ICRA]AA (Stable) by ICRA.
Features: Offers competitive interest rates and is part of a well-established financial services group.

2. India Infoline Finance

Issuer: IIFL Finance, the holding company of the IIFL Group.
Rating: ‘CRISIL AA/ Stable’ by CRISIL.
Features: Provides various financial services, including gold loans, home loans, and business loans.

3. Shriram Transport Finance Co

Issuer: Shriram Finance Limited (formerly Shriram Transport Finance Company Limited).
Rating: ‘IND AA+’/Stable by India Ratings.
Features: Focuses on financing used vehicles and other asset finance services.

4. JM Financial Credit Solutions

Issuer: JM Financial Credit Solutions Limited.
Rating: [ICRA]AA (Stable) by ICRA.
Features: Offers financial solutions, including real estate financing, structured finance, and capital market funding.

5. M&M Financial Services

Issuer: Mahindra and Mahindra Financial Services Limited.
Rating: ‘CRISIL AAA/Stable’ by Crisil.
Features: It specializes in financing vehicles and tractors and providing other financial products.

6. Tata Capital Housing Finance

Issuer: Tata Capital Housing Finance Limited, part of Tata Capital Limited.
Rating: [ICRA]AAA (Stable) by ICRA.
Features: Engages in consumer loans and housing finance solutions.

7. NTPC Limited

Issuer: National Thermal Power Corporation Limited.
Rating: CARE AAA; Stable by CARE Ratings.
Features: Government-owned corporation and India’s largest power generation firm.

Strategic Investment through Low Brokerage Demat Accounts

For individual investors, utilizing a low brokerage demat account can be instrumental. Such accounts facilitate easy management of NCD investments, from purchasing to monitoring to sale. The convenience of online platforms simplifies the process, ensuring investors can act swiftly on market opportunities without incurring high transaction costs.

Conclusion

Investing in NCDs can significantly enhance your investment portfolio’s diversity. One key advantage of NCDs is that they don’t entail Tax Deducted at Source (TDS) when held in demat form, and they offer liquidity even before maturity without any premature penalty.

Successful investment in NCDs requires a proactive approach and, often, professional guidance to overcome the complexities of the financial markets.