NCD / BONDS

 Non Convertible Debentures :

Non-convertible debentures are simply regular debentures, cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them. As a result, they usually carry higher interest rates than their convertible counterparts.

NCDs might be the answer to your quest for the investment instrument that offers high returns with moderate risk while giving you the flexibility of choosing between short and long tenures.

NCDs might be the answer to your quest for the investment instrument that offers high returns with moderate risk while giving you the flexibility of choosing between short and long tenures.

Secured NCDs offer lower interest rates compared with unsecured ones. If you want a regular income from NCDs, you can pick those that pay interest on a monthly, quarterly or annual basis. If you just want to grow your wealth, you can opt for cumulative option where the interest earned is reinvested and paid at maturity.

Companies seeking to raise money through NCDs have to get their issue rated by agencies such as CRISIL, ICRA, CARE and Fitch Ratings. NCDs with higher ratings are safer as this means the issuer has the ability to service its debt on time and carries lower default risk.

Capital Gain Bonds :

We offer Capital Gains Bond under Section 54EC of the Income Tax Act, 1961. These bonds are being issued as 'Long term specified assets' within the meaning of Explanation (b) to sub-section (3) of Section 54-EC of the Income Tax Act, 1961. Those desirous of availing exemption from capital gains tax under Section 54 EC may invest in these bonds. Capital gains arising from transfer of Long-term capital assets can be invested in these bonds within a period of six months from the date of transfer of the asset for getting exemption from the capital gains tax. Such Bonds are issued by SIDB, NHB, NHAI and REC.

Key Features :

  • 1. Minimum investment of Rs10,000 and in multiples of Rs10,000 thereafter
  • 2. Structure-I Tenure is 3 years. Interest Payment : Annual or Cumulative
  • 3. Structure-II Tenure of Five years with Put or Call option at the end of 3 years
  • 4. Structure-III Tenure of Seven years with Put or Call option at the end of 5 years
  • 5. Interest Payment: Semi Annual,Annual or Cumulative
  • 6. Lock-in-period of 3 years for all the structures
  • 7. No TDS on Interest payable for Resident Investors
  • 8. 'CARE AAA' rating from CARE
  • 9. Half yearly interest payable on 1 June and 1 December each year
  • 10. Annual Interest payable on 1 June every year
  • 11. Rate of Interest: Due to frequent change in the rate of interest, investors are requested to check the same before investing
  • 12. NRIs, OCBs or FIIs are eligible to invest on non-repatriation basis
  • 13. The issue is available on-tap
  • 14. Registrars of the issue are Datamatics Financial Software and Services Ltd.

Tax Free Bonds :

Risk-averse investors now have new options to park their money. The interest earned on these bonds will not be subject to income tax. The interest on these bonds will be paid annually (for example 31st March every year) by credit into the account of the investor. There is no cumulative option.

These bonds will be eventually listed on the Bombay and National Stock Exchange, so investors will have the option of selling them before the full term of the bond. However, the price you may get for selling before they mature will depend on market conditions.

These bonds will be eventually listed on the Bombay and National Stock Exchange, so investors will have the option of selling them before the full term of the bond. However, the price you may get for selling before they mature will depend on market conditions.

Is effective yield the right way to look at tax-free bonds ?

Investors get carried away by the effective yield on tax-free bonds. The effective yield is calculated as follows :

Effective yield = coupon rate/ (1-tax rate). Hence, for a coupon of 8.2%, an investor in the 30.9% tax bracket has an effective yield of 11.86%. The cash flow in the hands of the investor is only Rs 8.2 for every Rs 100 invested in the bonds, and the reason the yield is shown higher is due to the tax rate. Change in tax rate will change the effective yield on the bonds.

Who should invest in tax-free bonds ?

Effective yield is only relative in nature, not absolute. If the comparison is between investing in a ten-year fixed deposit of an AAA-rated bank at 8.2% which is taxable and investing in a ten-year maturity tax-free bond at 8.2%, then effective yield can be used as a measure for comparison. Investors can substitute tax-free bonds for fixed deposits as post-tax return is much better on tax-free bonds.

Effective yield is only relative in nature, not absolute. If the comparison is between investing in a ten-year fixed deposit of an AAA-rated bank at 8.2% which is taxable and investing in a ten-year maturity tax-free bond at 8.2%, then effective yield can be used as a measure for comparison. Investors can substitute tax-free bonds for fixed deposits as post-tax return is much better on tax-free bonds.