tag:blogger.com,1999:blog-8483021005927155630.post406876152976799845..comments2019-12-14T19:00:59.212+05:30Comments on The Money Quest: NCDs – Top 10 FAQsUnknownnoreply@blogger.comBlogger44125tag:blogger.com,1999:blog-8483021005927155630.post-75969121883361003202013-12-03T17:26:10.835+05:302013-12-03T17:26:10.835+05:30I want to purchase NCD from Muthoot Finance, what ...I want to purchase NCD from Muthoot Finance, what the tax percentage will be<br />levy from my monthly interest of Rs 1,2000.00.......? please advise<br /><br />Thanks<br />Regards............Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-54822820716944079382013-12-02T19:45:45.539+05:302013-12-02T19:45:45.539+05:30Hi
Thanks for this extremely useful article. Howe...Hi<br /><br />Thanks for this extremely useful article. However I have a question regarding taxation.<br />If I buy an NCD with cumulative option, the amount at maturity implicitly includes interest. However would that amount be taxed as interest income or as capital gain?<br /><br />-SanchitAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-37689752165154832092013-09-27T15:15:40.386+05:302013-09-27T15:15:40.386+05:30Dear Anonymous! It will disappear from your portfo...Dear Anonymous! It will disappear from your portfolio automatically and the maturity amount with interest till the date will reach your bank account.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-84888382045584552602012-08-31T15:00:13.182+05:302012-08-31T15:00:13.182+05:30Hi,
On maturity of the NCD, do we have to give an...Hi,<br /><br />On maturity of the NCD, do we have to give an Issue Slip (like in the case of shares) to the DP or is automatically removed from the Portfolio Holding<br /><br />Thanks,<br />NMAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-75457642869696830702010-07-25T19:31:31.188+05:302010-07-25T19:31:31.188+05:30Hi fisher ,
Your information is very valuable.Just...Hi fisher ,<br />Your information is very valuable.Just wanted to know if i want to purchase the TATA CAPITAL NCD for the half yearly return is right time to buy or i should wait for the credit policy.If i would hold it till maturity what would be the effective rate of return.<br /><br />Thanks <br /><br />AnandAnandhttps://www.blogger.com/profile/04239614820441837407noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-18502685263378911262010-06-09T11:33:09.413+05:302010-06-09T11:33:09.413+05:30I have been trying to calculate the annualized yie...I have been trying to calculate the annualized yield to maturity and getting different numbers based on the formula used. <br /><br />For example for Tata NCD IV: <br /><br />Coupon Rate : 12%<br />Annual Cumulative<br />Face Value: 1000<br />Duration : 5 Years<br /><br />Value at Maturity = 1000 (1.12) ^ 5 = 1762.34<br /><br />Now using the YIELDDISC formula in excel the effective annual yield on the discount bond will be equal to 15.28%. <br /><br />Any comments on the calculations above.Venkat Ramakrishnahttps://www.blogger.com/profile/05506272471055150409noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-42671902542363600362010-05-19T20:09:15.018+05:302010-05-19T20:09:15.018+05:30Thanks for the info.I keep hearing about BONDs and...Thanks for the info.I keep hearing about BONDs and NCD . Can you clarify the difference between a BOND and a FIXED deposit.<br /><br />much appreciatedDrPrAbnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-40678330147837471242010-05-14T04:54:37.657+05:302010-05-14T04:54:37.657+05:30Hello Fisher,
First let me congratulate you on th...Hello Fisher,<br /><br />First let me congratulate you on the wonderful job that you are doing to clarify little details. It is very refreshing to see someone who has real command over details. <br /><br />I guess it shouldn't be difficult but I am confused nonetheless while trying to calculate bond YTM for 11% monthly coupon NCD. Here are my questions:<br /><br />1) Finance calculator TI BAII that I am using does not have the option to compute 12 payment period in a year. Excel "Yield" function doesn't take more than 4 periods and Excel "Rate", "IRR" and "YIELDMAT" function gives an error #NUM<br /><br />I will be very interested to know how you came up with a YTM of 8.52% Per Annum for Tata Cap NCD Option 1 with a price of 110.5% for the remaining maturity period of 4.5 years. This is with reference to price quote on September 7, 2009.<br /><br />2) I am also trying to figure out how do they get to 11.57% Yield to Redemption in the prospectus for Option I. I am assuming Yield To Redemption is the same as Yield To Maturity and that all the tranches were issued at Par and the the Put and Call optionality are not considered. This question is related to the previous question in the sense that I can compute it once I know the answer to the previous question.<br /> <br />3) I thought bond prices are quoted on clean basis i.e. without accrued interest rate. Therefore, 110.5% of par would be the clean price on September 7, 2009.<br /><br />I will really appreciate if you can help clear my doubts. I probably am missing something very simple but for now, I don't get it.<br /><br />Thanks for your help.<br /><br />--<br />HariHarinoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-75159459048623504592010-02-23T06:56:00.288+05:302010-02-23T06:56:00.288+05:30fmps,debentures(ncds) and bonds are listed on ns...fmps,debentures(ncds) and bonds are listed on nse/bse-however my broker icicidirect.com does not allow trading in these catagory(except tata ncd-we cannot buy shriram transport ncd or larsen and turbo ncd despite they r listed on nse/bse,active trading takes place in that counter) -pl lemme know which broker has trading platforms for samekashmiranoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-88916288897236210892010-02-02T09:27:36.670+05:302010-02-02T09:27:36.670+05:30Santanu: You’re intelligent enough to go through a...Santanu: You’re intelligent enough to go through a prospectus but at the same time silly enough to pose such questions.<br /><br />Again, my advice is to discuss it with your friends. And, if they don’t answer, then enroll yourself in the CFP certification.<br /><br />In future, I might open a finance school to teach people like you.Fisherhttp://www.themoneyquest.comnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-60451345173362632852010-02-02T01:36:55.399+05:302010-02-02T01:36:55.399+05:30Hi Fisher,
Thank you so much for your help and su...Hi Fisher,<br /><br />Thank you so much for your help and support.<br /><br />Now the coupon rate and yield on redemption is clear to me.<br /><br />Sorry to disturb you again!!!!<br /><br />However the Redemption Amount is not clear to me.Could you please help me to understand that....its mentioned in the prospectus as below<br /><br />"Face Value plus any interest that may have accrued payable on redemption"<br /><br />I am completely new to NCD so please help me to understand the above statement.<br /><br />After going through your comments ,I have the follwing concerns.<br /><br />1.I have the NCD with N2 option which is semiannual,therefore the intrest amount will be paid directly to my account in every six month.If i take your example in to consideration then i will get 4810 for evry six month directly in my account.But you have mentioned that if i reinvest that amount..this is not clear to me..is it possible to reinvest the semiannual intrest just like cumulative scheme(reinvest of annual intrest)..if yes then please guide me how to do this?<br /><br />Thanks in advance for your help and support.<br /><br />Thanks and Regards<br />Santanusantanuhttps://www.blogger.com/profile/10911026790160046915noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-26776179192050955492010-02-01T17:02:29.785+05:302010-02-01T17:02:29.785+05:30Srinivas: ok, here’s the point-wise reply:
2. For...Srinivas: ok, here’s the point-wise reply:<br /><br />2. For TDS on NCDs, see question no 6 of this post.<br /><br />3. See question 10 of this post and point no 4 (good liquidity) of “Should you Invest in NCDs”.<br /><br />4. Yes, you’re correct.Fisherhttp://www.themoneyquest.comnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-1577123738828276212010-02-01T09:48:11.483+05:302010-02-01T09:48:11.483+05:30Thanks for the response.
But I didnot find proper ...Thanks for the response.<br />But I didnot find proper answer for question 2,3,4?Srinivas Girigowdahttps://www.blogger.com/profile/03963224539973117720noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-41202106208773993402010-01-31T16:27:08.774+05:302010-01-31T16:27:08.774+05:30Srinivas: I don’t like repetition. All your questi...Srinivas: I don’t like repetition. All your questions are already answered by me. So please take some pains to read the post before asking any further questions. <br /><br />In addition to this post there are two other posts: “Should you invest in NCDs?” and “L&T NCD: A Review” Click on the links given just above the comment section.<br /><br />After reading all the three posts, if any doubt still remains, you’re most welcome to ask me.Fisherhttp://www.themoneyquest.comnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-78877914897306576252010-01-31T11:33:46.418+05:302010-01-31T11:33:46.418+05:30Thanks for the nice article. Some clarifications c...Thanks for the nice article. Some clarifications considering TATA CAPITAL NCD<br />1. If I invest 1 lakh in cumulative option, after maturity (5 years) I must receive 176222/- Rupees. Right?<br />2. I assume broker/exchange will not deduct any tax on my maturity amount automatically, I must manually declare the interest as income while doing tax calculation. Right?<br />3. What is the reason behind NCD price going down on one day compared to previous close price?<br />4. Will this NCD be closed after 5 years? in that case, if I invest today, then i can keep only for next 4 years? Right?<br />5. Is there any way to get more returns from NCD (put/call)Srinivas Girigowdahttps://www.blogger.com/profile/03963224539973117720noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-76128578697002955222010-01-28T21:49:40.798+05:302010-01-28T21:49:40.798+05:30Oh Santanu, you’re incorrigible! No problem – let ...Oh Santanu, you’re incorrigible! No problem – let me explain. <br /><br />An interest rate of 9.62% payable / compounded half-yearly is equivalent to an interest rate of 9.85% payable annually.<br /><br />Let’s make it a bit easier. Suppose your total investment is Rs 1 lakh. Now after six months you’ll receive Rs 4,810 (@ interest rate of 9.62%). Now if you reinvest this Rs 4,810 for further six month at the same rate of interest, then at the end of year you’ll receive Rs 4,810 plus Rs 231 (interest on Rs 4,810). So your total interest income for the year becomes Rs 9,851.<br /><br />I hope it is now clear.Fisherhttp://www.themoneyquest.comnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-54465210993276476872010-01-28T12:51:40.490+05:302010-01-28T12:51:40.490+05:30Hi Fisher,
I am not convince with your answer tha...Hi Fisher,<br /><br />I am not convince with your answer that i only receive back 25k at maturity<br /><br />Its being mentioned in the prospectus that coupon rate is 9.62% where as yield on redemption is 9.85%.<br />However redemption amount is face value plus any intrest that may have accrued payable on redemption.<br /><br />Therefore as per my understanding if the market value of each NCD at the time of maturity is 2000 then i will get 2000*25...please correct me if i am wrong.<br /><br />If my understanding is correct then my another concern is reagring yield on redemption percentage(9.85%).<br /><br />Please clarify my above concern.<br /><br />Thanks and Regards<br />Santanusantanuhttps://www.blogger.com/profile/10911026790160046915noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-13411702899842311502010-01-27T18:56:45.431+05:302010-01-27T18:56:45.431+05:30Hi Santanu,
Your understanding regarding payment ...Hi Santanu,<br /><br />Your understanding regarding payment of interest is very correct.<br /><br />On maturity of NCD, you will receive back your 25K. It will be automatically credited to your account.Fisherhttp://www.themoneyquest.comnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-57177269647105550092010-01-27T17:29:23.504+05:302010-01-27T17:29:23.504+05:30Hi Fisher,
I have L&T NCD worth 25000 with N2...Hi Fisher,<br /><br />I have L&T NCD worth 25000 with N2 scheme at the coupon rate 9.62%.so as per my understanding i will get the intrest 9.62% of 25000 in each six month starting from the listing date to the date of maturity directly in my linked account.<br />Please confirm whether my understading is correct or not.<br /><br />However could you please let me know in brief that what is the amount i will get in maturity which is 5 year and does it automatically credited to my account or i have to do something to get the amount.<br /><br />I have asked all these concerns to my friends but they dont have any idea about it,so could you please put some light on it then i will be gratefull to you.<br /><br />Thanks and Regards<br />Santanusantanuhttps://www.blogger.com/profile/10911026790160046915noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-67363487435571347212009-12-04T12:52:32.093+05:302009-12-04T12:52:32.093+05:30Hi Fisher...
Thanks very much for this...Hi Fisher...<br /><br />Thanks very much for this...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-2692463461170467822009-10-08T13:59:32.395+05:302009-10-08T13:59:32.395+05:30Ram, your first two questions are not clear. Kindl...Ram, your first two questions are not clear. Kindly be more specific as to what exactly you want to know. I’m answering your last three questions:<br /><br />3.Put option of 36 months means that on expiry of 36 months, you’ve right to sell the NCDs back to the company at the initial issue price of the NCD irrespective of market price of NCD. And, if you exercise it, company is bound to buy-back / redeem it.<br /><br />For exercising it, you’ll need to inform the company within 30 days of the expiry of 36 months from the deemed date of allotment.<br /><br />4. Yes, you can show the interest on NCD (Cumulative option) on accrual basis provided you’re treating your other interest income (such as interest on FDs) in a similar manner for tax purpose.<br /><br />5. Your declared interest income can’t be deducted while computing short term or long term capital gains.Fisherhttp://www.themoneyquest.comnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-90061604109493444912009-10-07T15:50:13.936+05:302009-10-07T15:50:13.936+05:30DEAR SIRS,
I HAVE TATA CAPITAL NCDs (OPTION - IV)...DEAR SIRS,<br /><br />I HAVE TATA CAPITAL NCDs (OPTION - IV). <br /><br />I HAVE GONE THRU YOUR SERIES OF QUERIES AND VARIOUS ANSWERS THERETO. HOWEVER I FEEL MY CERTAIN QUERIES RAMAINED UNANSWERED OR RATHER I MIGHT GOT CONFUSED . PLEASE ACCEPT MY APOLOGIES IF MY QUERIS ARE FOUND TO BE REPITATIVE<br /><br />MY QUERIES ARE AS UNDER:<br /><br />1) AS PER OPTION-IV , I AM ENTITLED COUPON (%) 12% PA TO BE COMPOUNDED ANNUALLY WHEREAS MY YIELD ON REDEMPTION IS 12%, THEN WHAT IS MY EFFECTIVE RATE OF GAIN IN INTEREST? <br />2) SECONDLY, WHY EFFECTIVE RATE IS NOT MENTIONED DIRECTLY<br />3) I HAVE PUT OPTION FOR 36 MONTHS. HOW DO I EXERCISE IT?<br />4) INTEREST EARNINGS ON NCD IS TAXABLE.BUT I DONOT WANTTHE SAME TO BE TAXED ON MATURITY (WHICH MAY BE 36 MONTHS OR 60 MONTHS). INSTEAD I WOULD PREFER IT TO DECLARE ON ACCRUAL BASIS EVERY YEAR SO THAT I NEED NOT BURDEN MY TAX LIABILITY ON ITS MATURIY. IS IT ALLOWABLE TO DECLARE ACCRUED INTEREST AS MY INCOME FROM OTHER SOURCE ON NCDs EVERY YEAR TILL MATURITY ?<br />5) IF YES, THEN FOR SOME REASON (OR, TO MAXIMISE MY CAPITAL GAIN) IF I SELL THEM BEFORE MATURITY ( THAT IS BEFORE EXERCISING 36 MONTHS CALL / PUT OR BEFORE 60 MONTHS), WHAT WILL HAPPEN TO MY DECLARED ACCRUED INTEREST INCOME? WILL IT GET DEDUCTED WHILE COMPUTING MY SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN? <br /><br />I SHALL BE VERY MUCH GRATEFUL IF I GET EXPERT GUIDANCE ON THE ABOVE ISSUES.<br /><br />RAM GPRamgphttps://www.blogger.com/profile/11153583338684483735noreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-19407942961009822172009-09-12T18:10:31.696+05:302009-09-12T18:10:31.696+05:30Prabhu, I can understand your confusion. Don’t wor...Prabhu, I can understand your confusion. Don’t worry, I’ll clarify.<br /><br />First, let me answer your questions one by one:<br /><br />1. Right<br /><br />2. Correct<br /><br />3. Yes, if you buy Tata Capital NCD option-3 even one week before the record date / book closure date (and not declaration date), you’re entitled for the full year interest. Debt securities are quoted cum-interest i.e., the interest accrued till the date of buy / sell is already reflected in the price.<br /><br />4. The correct figure is 9.89%.<br /><br />5. The safety / risk of the instrument remain the same irrespective of the amount of investment made. In case of NCDs there is default risk, reinvestment risk, interest rate risk, call risk etc. <br /><br />So, you’ll have to do risk management / mitigation on your own by spreading out your investments across different asset classes (e.g., equity, debt, gold, property etc) and further diversify among various instruments under a single asset class in accordance with your goals, risk taking ability and time horizon.<br /><br /><br />What you’ve written is more or less correct. I don’t dispute it. But what you’re considering is ‘Current Yield’ which is not a correct way to measure returns from NCDs / Bonds. Why? Because, it shows only half the picture.<br /><br />Let me explain it. If we assume that you’re going to get back your entire original investment (i.e., the principal amount) at the time of redemption, your calculations are perfectly correct. However, it is not so. For example, if you buy Tata Capital NCD option 2 from the market at a price of Rs 1140, you’re going to get back only Rs 1000 at the time of redemption by the company after 4.5 years. In other words, you’ll incur a capital loss of Rs 140 at the time of redemption which is not reflected by the current yield.<br /><br />Now, you can go back to my previous reply.Fisherhttp://www.themoneyquest.comnoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-42706237422943685502009-09-11T21:38:57.206+05:302009-09-11T21:38:57.206+05:301)I had asked if N1 option, monthly income option,...1)I had asked if N1 option, monthly income option,monthly income is for 4.5 years as 6 months have elapsed, is that correct. Also based on todays NAV 0f 111000 and monthly interest of 916 on face value of 100000 at 11%, Interest we get is 9.9% and not 8.52% as mentioned by you if my calculations are right<br /><br />2) Option 2, N2 Quarterly interest is 28.13 at 11.25%, so Interst we get if we buy at 1140 is 9.9% again. But my Query was as 6 months have passed i.e 2 Quarters are over from date of allotment we get interest for only the rest 2 Quarters of the year. Am i correct?<br /><br />3) Option 3, N3 Annual interest is 120 on face value of 1000 at 12%, So Interest works out to 10.41% at present purchase cost of 1153, My Query was as 6 months have passed will i still get interest for complete year? Is interest given to the person who holds these bonds in the Book of records on the date of declaration? If thats the case suppose i buy the NCD just a week before the Annual interest is declared, still i get the interest of full year,But the Interest is already reflected in price i buy?<br /><br />4) Option 4, N4 Cumulative yields 1762.3 at 12% Compounded annually on face value of 1000, so net interest we receive is 9.83% compounded yearly on present cost of purchase of 1153 for a period of another 4.5 years, at 9.83% after 4.5 yeas we get 1762.3 if held on till maturity.<br /><br />5) How safe it is to invest bigger amounts in these NCD?<br /><br />Hope you answer all my Queries in detail one by one.<br />You could also email me the reply at sudheerdr2000@yahoo.comPrabhunoreply@blogger.comtag:blogger.com,1999:blog-8483021005927155630.post-866142598475872122009-09-09T22:23:26.099+05:302009-09-09T22:23:26.099+05:30Prabhu, sorry for the delay in response.
Based on...Prabhu, sorry for the delay in response.<br /><br />Based on the information provided by you and assuming that 6 months have elapsed since the deemed date of allotment of Tata Capital NCDs, the yield till maturity (YTM) works out to be approximately 8.52% p.a. under option 1 (Coupon 11% p.a.), 8.24% p.a. under option 2 (coupon 11.25% p.a.), 9.72% p.a. under option 3 (coupon 12% p.a.) and 10.14% (coupon 12% compounded annually) under option 4.<br /><br />If you want a regular income from NCDs, go for option 3 which provides you with extra returns of more than 1% p.a. as compared to option 1 and 2.<br /><br />But if regular income is not a requirement, go for option 4 which provides you with the maximum returns among all the four investment options. <br /><br />Your second question about the total amount to be invested in Tata Capital NCDs can’t be answered based on the information provided by you. It depends upon many factors such as your existing asset allocation, your risk appetite, time horizon, tax liability and other investments opportunities available to you.<br /><br />P.S. The rates of NCDs are subject to daily changes, so you’ll have to rework the calculation at the time of making investment if there is change in the market rates of the Tata Capital NCDs.Fisherhttp://www.themoneyquest.comnoreply@blogger.com