In a bid to adapt to the changing market conditions, companies are trying to raise funds innovatively by turning to old methods. For investors, these instruments offer opportunities for investment. One such instrument is the five-year secured non-convertible debentures (NCD) offered by Tata Capital, a non - banking finance subsidiary of Tata Sons. With interest rates of 11-12%, the NCDs offer superior returns compared with bank fixed deposits, though they are riskier. However, interest rates on five-year bank deposits now range from 8.25-10.25%.
(* Interest is payable per annum; for individuals in the highest tax bracket; maturity period for investment in five years)
There are four options to choose from, based on the periodicity of payments and the minimum amount that can be vested. The cumulative option seems most attractive as it allows reinvestment of the interest proceeds at high coupon rates of 12%. The NCDs are being offered only in a demat format, so you need to have a demat account before applying. This will ease liquidity if you wish to sell the debentures before maturity as the NCDs are proposed to be listed and traded on the NSE.
Another benefit is that the tax deduction will be on the interest paid and based on the investor's income slab. As the company intends 100% allotment for investors who put in less than Rs. 1 lakh, many small investors can gain from the high coupon rate. Launched on 2 February, the issue closed on 24 February.
This article is sourced from Money Today for InvestmentYogi. The original author of this article is Narayan Krishnamurthy.