POWER FINANCE CORPORATION NCD ISSUE: SHOULD YOU INVEST?


Less than a year ago, when the markets tanked in the month of March 2020 and continued on their downward trend, wiping out investor wealth globally, the negative sentiment in the market was a live and palpable new monster that devoured the confidence of the most seasoned investor. 

Cut to Jan 2021, with indexes breaching new highs, the disciplined investors reaped the rewards of their patience as they saw their investments not only recover lost ground but also swell up to reasonable proportions. However, like a tiger in the shadows, the fear of markets tumbling down again remained in the investors mind. With high liquidity, investors continued to look for investment options to park their funds.

In times such as these, Non Convertible Debentures by the Public Sector enterprise; Power Finance Corporation (PFC) present an investment opportunity to investors looking for fixed returns.  These bonds are secured, AAA rated by three agencies; ICRA,CARE & CRISIL and are available in de materialised form(through demat only). 

The interest rate on offer is between 4.8% & 5.8% for a tenure of 3 and 5 years.  If one was to keep these bonds for a period of 10 years, then the interest rate would be around 7%. Keeping these bonds for 15 years would fetch 7.15%*(please check the table for more details).

What works in favor of these bonds is that one they are rated AAA and second they would be listed on the exchange providing an exit window to those who want to exit pre mature.  

On the flip side, what doesn't work is that the interest receivable on these bonds is taxable as per slab making them not so attractive for investors in the highest tax slab.  Moreover, the interest rates on offer themselves are quite low.  For example the interest on offer on 3 year bond is only 4.8% as against 5.3% on Bank deposits(SBI).  Similarly on a 15 year tenure, the ROI is 7.15% which an investor can also get by investing in Govt of India taxable bonds that offer the same ROI with a lock in of just 7 years.

In summary, it all boils down to one's investment need and what suits that the best. If one is looking to invest in NCD kind of instruments then this one with its triple rating and an attractive interest rate in comparison to other similar instruments checks all the right boxes.  

However, given the requirement of a demat and the long lock in, it may be better to look for other options.

For more details, it would be advisable to talk to your advisor.

Cheers to informed investing!

Anupama Bhargava
Beekay Taxation & Investment LLP


POWER FINANCE CORPORATION NCD 








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