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SR - 104.18/10/2011
CONTENTS
INTRODUCTION OBJECTIVE NCD YIELDS RECENTLY LISTED NCDs COMPARITIVE STUDY ON NCDS COUPON RE-INVESTMENT OPTION COMMENT CONCLUSION
INTRODUCTION
Recently, many of the listed NCDs are trading at discount. And this offers a much better Investment opportunity for those who missed out the initial subscription. Since they are trading on the exchange, the price varies from time to time, and a bond that had a face value of Rs. 1,000 can be trading for Rs. 920, or even be trading at Rs. 1,100. The price at which you buy the bond doesnt affect the interest payment. Regardless of what you pay for the bond, you will get the interest rate promised by the issuer on the face value of the bond.
OBJECTIVE
To conduct a comparative study on recently listed NCDs which are trading actively and that too in a discount
NCD YIELDS
The price of listed bonds fluctuates with demand and supply, and the demand for a bond depends on the interest rate on that bond and the quality of the issuer We have seen rising interest rates in the past few months, and the bonds that came out earlier had a lower coupon rate than the bonds that are coming out now If the quality of both their issuers is the same then there is no reason to buy the bond at a lower coupon rate (since the bond at a higher coupon rate is available) Generally, there are two types of yields associated with bonds Current Yield and Yield to Maturity The current yield tells you whats the effective rate of interest you will get when you buy the bond at the market price. So, a bond with a face value of Rs. 100, and rate of interest of 9% will have a yield of 9% when the bond is first issued, but if the bond starts trading at Rs. 90 in the market then your yield becomes 10%, since you get Rs. 9 interest on your investment of Rs. 90 Since you are buying the bonds at a discount, you get additional income when you redeem them at face value, so you will get Rs. 100 for a bond that you bought for only Rs. 90, and that also adds to your yield. The Yield To Maturity calculation takes this into account as well, and thats the second type of yield normally associated with bonds There is a little bit of speculative element on the prices of NCDs as well since they are trading on a stock exchange, and a lot of people who buy them arent buying them for interest income but rather sell them to someone else for capital gains, and that introduces some bit of volatility in the bond prices
MUTHOOT FIN OPTION 1 MUTHOOT FIN OPTION 2 MUTHOOT FIN OPTION 3 MUTHOOT FIN OPTION 4 MUTHOOT FIN OPTION 5 MUTHOOT FIN OPTION 6 SHRIRAM TRANSPORT OPTION 1 SHRIRAM TRANSPORT OPTION 2 SHRIRAM TRANSPORT OPTION 3 SHRIRAM TRANSPORT OPTION 4 SHRIRAM TRANSPORT OPTION 5 SHRIRAM TRANSPORT OPTION 6 SHRIRAM CITY UNION OPTION 1 SHRIRAM CITY UNION OPTION 2 SHRIRAM CITY UNION OPTION 3 SHRIRAM CITY UNION OPTION 4 SHRIRAM CITY UNION OPTION 5 SHRIRAM CITY UNION OPTION 6 MANAPPURAM OPTION 1 MANAPPURAM OPTION 2 MANAPPURAM OPTION 3
MUTHOOT FIN N6
Initial deposit 93000 No. of Units Interest on earnings Interest during the first year Interest during the second year Interest during third year Interest during fourth year Interest during fiifth year Total Total interest realised Total amount received at the end of 5th year Amount received other than principle Average per year return percentage 12250 12250 12250 12250 12250 61250 77505.8 177505.8 84505.75 18.17 177505.75 84505.75 6627.25 5218.5 2940 1470 0 16255.75 100 Remaining period 4 Years 3 Years 2 Years 1 Year 0 Year
Name of Issuer MUTHOOT FIN OPTION 2 MUTHOOT FIN OPTION 4 MUTHOOT FIN OPTION 6 SHRIRAM TRANSPORT OPTION 1 SHRIRAM TRANSPORT OPTION 2 SHRIRAM TRANSPORT OPTION 3 SHRIRAM CITY UNION OPTION 2 SHRIRAM CITY UNION OPTION 3 SHRIRAM CITY UNION OPTION 6 MANAPPURAM OPTION 1 MANAPPURAM OPTION 3
FV CMP
% Return on maturity 39.92 Current yield 12.35 12.58 13.17 11.04 10.96 8.98 11.96 12.21 12.02 12.00 12.44
1000 972
13.12 13.29 14.15 11.22 10.25 -0.33 12.08 12.34 12.22 12.00 13.28
16.79 17.23 18.17 14.55 14.34 9.61 16.16 16.6 16.26 16.23 16.99
1000 974 1000 930 1000 996 1000 1026 1000 1228 1000 991 1000 990.8 1000 986 1000 1000 1000 981
3 5 2 3 2 5 5 5 1.09 2
1367.5 1612.5 1220 1337.5 1220.6 1592.5 1605 1592.5 1130.8 1244
40.40 73.39 22.49 30.36 -0.60 60.70 61.99 61.51 13.08 26.81
YIELD TO MATURITY
16 14 12 10
8 6 4 2 0 -2 YIELD TO MATURITY
COMPOUNDING YIELD
18.5 18 17.5 17 16.5 16 15.5 15 MUTHOOT SHRIRAM CITY SHRIRAM CITY SHRIRAM CITY FIN OPTION 6 UNION UNION UNION OPTION 2 OPTION 3 OPTION 6 COMPOUNDING YIELD
COMMENT
NCDs are better alternatives at the present scenario as Stock Markets are highly volatile in recent times which increases the unpredictability and risk concern of the investors NCD is better than a bank fixed deposit because the interest rate differential is quite significant which
comes at just a slightly higher risk. The risk-return ratio is in favor of NCDs An investment offering higher returns invariably comes with additional risk. The biggest risk with NCDs is the possible capital loss in case of increase in interest rates. But investors willing to wait till maturity need not fear the same Above all the main advantage is the highlighted issues in the above table are very much attractive at the current market price as their Yield to Maturity is much favorable for anyone who purchases now and also the compounding can make wonders for the capital you invest
RISK FACTOR
NCDs are exposed to interest rate risk Lack of liquidity in some counters
CONCLUSION
We strongly recommend a BUY in the following four issues MUTHOOT FIN N2, MUTHOOT FIN N4, MUTHOOT FIN N6 and MANAPPURAM OPTION 3 mentioned in the above table at the current market price.
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