Experts Advice NCDs and FMPs Against Corp FDs ACCORDING to fixed deposit distributors, both manufacturing and real estate companies, have stopped accepting or renewing deposits from April after the new Companies Act came into force. According to the new Act, companies will have to pass a resolution at their AGM, provide for security on their fixed deposits and get rated before they can start collecting money from investors. “The stringent rules may make it tougher for companies to raise money via fixed deposits. Investors may have to look for alternative opportunities to deploy their proceeds when the deposits are repaid as not all companies may be prepared (under the new rules) to accept fresh deposits/renewal,“ says Vidya Bala, Head (Research), Fundsindia. Against this back drop, investors should start looking for alternative avenues to invest when these FDs mature and they get their money back. “Investors can look at NBFCs and bank fixed deposits, NCDs of finance companies as and when they hit the primary markets or opt for FMPs from mutual funds,“ says Surajit Mishra, executive vice-presi dent & national head -mutual funds, Bajaj Capital. While FDs are easy to understand, other products like NCDs and fixed maturity plans (FMPs) work differently and are not as liquid as FDs. “Investors must understand how the product works, whether it fits in their requirement before investing,“ says Bala. MANY OPTIONS AVAILABLE NBFCs would be the first stop for in vestors focused on interest rates. They are unaffected by the Companies Act and can continue to raise deposits. However, experts ask investors to take their eyes off interest rates and pay attention to the reputation of the company , as NBFC FDs can prove risky . “Go for NBFCs which have a strong rating and have a strong management,“ says Anup Bhaiya, MD and CEO, Money Honey Financial Services. NBFCs such as Mahindra Finance offer 10.25 percent while Shriram Transport Finance offers 10.75 percent for a three-year FD. Both are profit making, dividend paying, have strong financials and backed by reputed promoters. Distributors also ask investors to look for non-convertible debentures (NCDs) of NBFCs in the primary market. In April, Shriram City Union Finance IPO offered 11.75 percent for a five-year NCD. The IPO of SREI Infra Finance NCD is open and it offers 12 percent for five years. Investors can consider FMPs. “An FMP portfolio has securities that will mature more or less at the same time when the scheme matures. Hence, there is no interest rate risk for an investor holding an FMP till the maturity,“ says S Ramaswamy, chief investment officer (debt) at LIC Nomura Mutual Fund. He asks investors to put money in FMPs with tenures of one to three years. Investors can expect a return of around 9-9.1 percent on a one-year and one-day FMP and 9-9.25 percent on a threeyear FMP.
Posted on: Sat, 17 May 2014 11:29:38 +0000
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