NCD issues from 3 finance companies offer 9-10.75% returns

Retail investors looking beyond the hot equity markets or traditional fixed deposits could consider putting some money in Non-Convertible Debenture (NCD) public issues by three finance companies open currently for subscription. These debt instruments from Muthoot Fincorp, Indostar Capital Finance and Sammaan Capital could return between 9% and 10.75% over 2-10-year periods.

"Investors looking to book profits in equities and move some money to fixed income can consider some allocation to these NCDs," says Anup Bhaiya, managing director, Money Honey Financial Services.

The minimum investment amount in each NCD issue is ₹10,000. To buy them, investors must have a demat account. The interest rates of these NCDs would depend on the tenures and payouts.

The NCD of Muthoot Fincorp, an AA-rated company, offers interest rates of 9-10.10%. Sammaan Capital, which is also AA-rated offers between 9.65% and 10.75%. Indostar Capital Finance, which also has an AA- rating, offers 10.5-10.7%.

The tenures of these instruments are between 24 months (two years) and 120 months (10 years) and the payouts are monthly, quarterly, annual or cumulative.

These companies offer higher interest rates than bank deposits because of their relatively lower AA rating. The highest rating is AAA. For instance, an HDFC Bank deposit with a tenure of 35 months pays 7.35%, the three-year NCD of Muthoot Finance pays 9.65%, Indostar pays 10.7% while Sammaan Capital pays 9.9%.

"These NCDs give you an opportunity to earn 230-335 basis points above bank deposits and since they are listed on the stock exchange there is some liquidity, " says Vikram Dalal, Managing Director, Synergee Capital.

Dalal's first choice is Muthoot Fincorp followed by Indostar Capital and Sammaan Capital.

Investors must not allocate their entire corpus to a single issuer but look to spread their investments to reduce risk.