NCDs: Overweight on equities? These NCDs can help you correct asset allocation

MUMBAI: Fixed income investors are spoilt for choice with public issue of non-convertible debentures (NCDs) worth Rs 18,500 crore lined up for launch in the next 30-45 days to raise money to meet credit demand.

NCDs are lined up amongst other by Tata Capital Financial, Tata Capital Housing Finance, Aadhar Housing Finance and Indiabulls Commercial. The ‘AAA’ rated Tata Capital Finance has already announced its launch date of Sept ember 10 to mobilise Rs 7,500 crore and others are in the process of receiving regulatory approvals after filing prospectus.

Distributors said Aadhar Housing Finance’s offer to raise Rs 3,000 crore will follow and then Tata Capital Housing Finance’s issue to raise Rs 5,000 crore and Indiabulls Commercial Credit’s Rs 3,000 crore.

NCDs offer 100-200 basis points higher rate of interest compared to bank deposits. While a fixed deposit from a bank pays in the range of 7-8 per cent, NCDs pay anywhere between 8.5 per cent and 9.5 per cent. Many fixed income investors are using NCDs to build their fixed income portfolios as returns are assured.

“There is no tax deduction at source (TDS) if held in demat form, plus investors can get cash flows by way of annual interest and liquidity by way of listing on the stock exchange, which attracts investors,” says Anup Bhaiya, managing director, Money Honey Financial Services.

Many wealth managers believe, with stocks moving up in the current rally, investors whose asset allocation is titled towards equity could book some profit and use this opportunity to allocate to fixed income.

“If you are underweight fixed income, these NCDs with rates higher than bank deposits rates are a good opportunity to come back to your original planned asset allocation,” says Rupesh Bhansali, head (distribution), GEPL Capital. He said investors should have a higher priority to apply for NCDs with larger issue size as the chances of getting allotment are higher in case of oversubscription.

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