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Debentures turn hot, but mind the risks

Sachin Kumar, Hindustan Times  Mumbai, September 12, 2012
First Published: 21:09 IST(12/9/2012) | Last Updated: 02:25 IST(13/9/2012)

Upset that bank fixed-deposit rates are coming down, eroding the earning power of your savings?


Corporate debentures - bonds that carry interest - can come to your rescue, offering attractive returns, often with the additional comfort of a dematerialised holding that makes managing them easy.

Debentures can be convertible, where the bonds become shares. But the attractive substitutes for FDs are non-convertible debentures (NCDs). But the credit rating they carry are important, as they signify the degree of risk you bear.

Several companies have hit the market to directly tap retail savings.

Among them are Muthoot Finance, Shriram City Union Finance and Religare Finvest which have launched NCDs that offer 11.50% to 12.25% interest on investments for three to five years.

"NCDs are good options to diversify your debt portfolio," said Vishal Dhawan, founder, Plan Ahead Wealth Advisors.

"Its good idea for retail investors to invest for longer periods (2-3 years) as fixed deposit rates of banks have started declining," he said.

Surya Bhatia, principal consultant, Asset Managers said: "Investors should go for a secured issue rather than an unsecured one and always prefer NCDs with higher ratings given by rating agencies."

Shriram City Union Finance debentures opened for subscription on September 12, while those of Muthoot and Religare Finvest will open for subscription on September 17 and September 14, respectively.

Increasingly, investors prefer to hold debentures in demat form.

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