Yield on 10-year government security (G-Sec), has come a full circle in the past month. It rose steeply on 22nd November from 8.58% to 9.01% and stood at 8.74% on 2nd December. The market is expecting another rate hike by the RBI which may create another yield spike.
Shriram City Union Finance (SCUF) has launched its issue of secured non-convertible debentures (NCDs). The NCDs will have annual coupon rate of 11% for a period of 36 months, 11.25% for 48 months and 11.50% for 60 months for retail investors and high net worth individuals (HNIs). Institutional investors, non-institutional investors and corporates will be paid a lower rate of interest of 10.75%. The issue has been rated as ‘AA’ by CARE. The interest is taxable even if TDS is not deducted. Taxable NCDs work well only for those up to 10% tax bracket. For others, it’s better to go for tax-free bonds from government companies.
Dewan Housing Finance Corporation (DHFL) is offering 13 months FD with interest rate of 10.50%pa. DHFL’s FD is rated by CRISIL as AA+. Corporate FDs are unsecured and, hence, savers should invest only a small portion of their savings. It is better to stick to CRISIL FAAA rated corporate FDs to minimise the chances of making a loss rather than chasing 0.25% to 1% higher returns with lower-rated FDs. There are cases of savers having had a difficult time to get back the FD maturity amount.