Investors at large , quite often find it difficult or rather in dilemma as to how smartly and profitably park their surplus funds keeping in mind Safety, Liquidity and Profitability. This often leads to a dilemma when the bank interest rates are falling like a pack of cards, inflation rate going up unabated, some of the NBFCs failing to service their debts, some MFs rolling over their commitment of Fixed Income maturity periods (like Kotak, HDFC recently), more and more shell companies coming to surface et al.
Despite the Share market index is touching new highs day in and day out, Investors are cagey to invest in shares. As one successful Entrepreneur stated ,” The greatest risk in life is not taking any Risk”, a small percentage of our surplus say 20-30 % could be invested in well-known companies with track record.
Quite recently many Companies have come out with offer letters for “Non Convertible Debentures’ (NCDs) offering attractive rate of Return (ROI), much better than bank and Post office deposits. These NCDs are essentially debts or loans for a medium to long term. While these deposits are technically unsecured in nature (in financial parlance), the NCDs are mostly secured although unsecured too are in vogue. But one special and specific advantage of such NCDs would be their compulsory rating being done by authorized rating agencies like CRISIL, ICRA, CARE, Fitch etc., The rating agency is supposed to thoroughly analyses and evaluate the capability of such issuing companies in the perspective of their ability to service and repay their debts as per the commitment being made by them say 3 years and above, with cumulative interest payment or periodical payments like quarterly or half-yearly. The Rating being given like AAA. AA+, AA- etc are good for investment from the point of view of safety and risk.
These NCDs are not converted into shares like Fully and partly convertible debentures. These funds are normally utilized for Business development, new products launching, expansion geographically, diversification or acquisition of a new company or business etc., While issuing NCDs a certain legal charge would be created against the specific assets of the Company which are considered as collateral for the NCDs. In case of any financial problems emerge the company would sell the charged assets and repay the bond holders. In case of unsecured NCDs, the remedy will of course be worse than the disease as no collateral would be available for sale and disbursement and such unsecured NCD holders will get only after satisfying secured debtors. The Interest from NCDs is of course taxable. The NCDs are listed sometimes and traded in the bourses in which case one can opt for liquidity by selling in secondary market subject to the Long term (10 %) or short term capital gain (15%) tax liability.
So invest in well known companies with track record and good investment rating!
So fill your Investment tub with diverse types of investments and avoid storing all your Eggs in a single basket!
Wish you all a Smart, Profitable and Strategic Investment acumen!