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In a scenario when interest rates are heading south, Shriram Transport Finance Company's (STFC) retail non convertible debenture (NCD) issue is a good investment option for those investors who fall in the lower income tax bracket of 10 per cent.
The non-banking finance company is coming up with this fiscal's first retail NCD issue of Rs 750 crore. The company is offering effective yield of 10.90 – 11.15 per cent to retail investors which looks attractive especially when the banks have started reducing deposit rates.
Moreover, 50 per cent of the issue is reserved for retail investors. The tenure of the debentures are three years and five years. The issue has been rated “AA/Stable” by CRISIL and “AA+” by Care. “STFC has got a fairly good track record. Retail investors can go for it, but they should clearly understand this is not the highest rating due to which risks are involved,” said Suresh Sadagopan, founder of Ladder7 Financial Advisories which specialises in comprehensive financial planning.
Currently, State Bank of India offers rate of interest of 8.8 per cent, both on three years and five years options while Postal Savings Scheme offers interest rate of 8.3 per cent on three years deposits and 8.4 per cent on five years deposits. These are, however, the highest rated in terms of safety. Hence, investors looking explicitly at safety should continue with bank and post office deposits. Those willing to take a little risk can opt for NCDs of STFC.
Each NCD is worth Rs 1,000 and the minimum application has to be for 10 NCDs. The debentures will be listed on the Bombay Stock Exchange and National Stock Exchange. The frequency of interest payment has the monthly as well as annual option.
For the 10 per cent income tax bracket, the post-tax per annum returns works out to be 10 per cent for five years and 9.8 per cent for three years. “If you are in the lower tax bracket, investing in this makes sense for you. If you are in the highest tax bracket, the effective yield comes down dramatically. But an investor needs to take into account his investment risk-reward ratio before investing. About 10-15 per cent of your debt investments can be allocated to this,” said Amar Pandit, chief executive officer of My Financial Advisor, a private wealth management firm.
The non-banking finance company is coming up with this fiscal's first retail NCD issue of Rs 750 crore. The company is offering effective yield of 10.90 – 11.15 per cent to retail investors which looks attractive especially when the banks have started reducing deposit rates.
Moreover, 50 per cent of the issue is reserved for retail investors. The tenure of the debentures are three years and five years. The issue has been rated “AA/Stable” by CRISIL and “AA+” by Care. “STFC has got a fairly good track record. Retail investors can go for it, but they should clearly understand this is not the highest rating due to which risks are involved,” said Suresh Sadagopan, founder of Ladder7 Financial Advisories which specialises in comprehensive financial planning.
Currently, State Bank of India offers rate of interest of 8.8 per cent, both on three years and five years options while Postal Savings Scheme offers interest rate of 8.3 per cent on three years deposits and 8.4 per cent on five years deposits. These are, however, the highest rated in terms of safety. Hence, investors looking explicitly at safety should continue with bank and post office deposits. Those willing to take a little risk can opt for NCDs of STFC.
Each NCD is worth Rs 1,000 and the minimum application has to be for 10 NCDs. The debentures will be listed on the Bombay Stock Exchange and National Stock Exchange. The frequency of interest payment has the monthly as well as annual option.
For the 10 per cent income tax bracket, the post-tax per annum returns works out to be 10 per cent for five years and 9.8 per cent for three years. “If you are in the lower tax bracket, investing in this makes sense for you. If you are in the highest tax bracket, the effective yield comes down dramatically. But an investor needs to take into account his investment risk-reward ratio before investing. About 10-15 per cent of your debt investments can be allocated to this,” said Amar Pandit, chief executive officer of My Financial Advisor, a private wealth management firm.
