4 reasons why the Shriram City NCDs make a good investment

Business

oi-Sunil

By Sunil Fernandes

Updated: Tuesday, September 11, 2012, 14:51 [IST]

Shriram City Union Finance NCDs is offering interest rates that are way higher than those offered by banks. With interest rates likely to fall, it makes sense to lock money in the instrument, which is offering coupon rate as high as 11.75%. The issue opens on September 12, 2012.

Here are five reasons why the Shriram City Union Finance NCDs look attractive:

Attractive coupon rates

The NCDs are offering a coupon rate to individuals up to 11.75% annually on the 5-year NCD option. The three year NCD option has a coupon rate of 11.50%, again making it very attractive. Banks have recently reduced interest rates and the maximum on interest rates one can get in a good PSU bank is 9.50%. Considering the comparison, one can get the NCDs at 200 basis points above fixed deposits in government banks.

Interest rates likely to fall

Recently, banks like State Bank of India and the Oriental Bank of Commerce have cut their deposit rates. In the medium term it is likely that interest rates could fall. Hence, it is advisable to lock money at higher interest rates, which would be a hedge against declining interest rates.

To be listed on the exchanges

The NCDs are to be listed on the exchange and hence offer good liquidity if one desires to encash the same. However, it must be admitted that volumes are likely to remain low and liquidating large quantities of NCDs may be difficult.

Relatively secure

The NCD is secured and the credit rating is Crisil AA-/ stable and CARE AA, indicates high financial stability and ability to fulfil financial obligations.

Risk

NCDs by nature are risky and if business takes a turn for the worse, there could be problems in the company fulfilling its obligations. This is especially true since three and five years duration are long, in a rapidly changing business environment.

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