Power finance NCDs a good bet for conservative fixed income investors

Aggressive investors or senior citizens, however, might get higher returns from corporate deposits or plans dedicated for those above 60.

The Tranche I Issue of NCDs with a base issue size of Rs 500 crore with a green shoe option of up to Rs. 4,500 crore aggregating up to Rs. 5,000 crore, of PFC will be open from July 21-28. The face value of the NCD is Rs 1000,investors need to apply for a minimum of 10,000 and need a demat account to hold it.

They are rated AAA by ICRA, CARE and CRISIL. The NCDs have tenures of 3, 10 and 15 years with interest rates of 7.5%, 7.53% and 7.55% respectively paid annually. For liquidity, the NCDs will be listed on the stock exchange and there will be no put or call option.

Investors can earn 50 points higher for a three-year tenure. A three-year postal deposit pays 7%, a 10-year Kisan VIkas patra pays 7.5%, while a fixed deposit with State Bank of India for three years pays 7%.

“This NCD gives an opportunity to earn 5-50 basis points higher than bank or postal deposits. Fixed income investors who invest largely in bank or postal deposits can consider a small allocation to this NCD, given the company’s strong financials, backing of the government and highest rating,” says Vikram Dalal, Managing Director, Synergee Capital. Given that there is just a 5 basis point differential between 3 years and 15 years rates, Dalal believes conservative investors can opt for the three-year NCD.

Some distributors believe senior citizens and investors with some appetite for risk could opt for senior citizen savings schemes or corporate deposits, where they can earn more.“Senior citizens can opt for a Bajaj Finance deposit which is AAA rated that pays 8.6% for 44 months, while senior citizen savings scheme pays 8.2% for 5 years, which are higher than these NCDs and do not need a demat account,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services.