JM Financial Products NCD – Should you invest?

JM Financial Products has come up with NCD offering yield up to 10%. Should you invest it or avoid it? How should you invest? Let’s do a quick and short review.


Verdict


Should you invest in or avoid it? So here it is…

Should you invest in this NCD? Yes

I am positive on JM Financial NCD offered currently. One can invest in this but with some caution. One can invest a part of his / her debt portfolio in this NCD. Especially for people in low tax bracket, returns are attractive. Reasons for my opinion as under.

You can also read what are NCDs here.

Disclaimer

Before we start – a disclaimer. Please note – I am not advising you on any financial decisions and you should do your own research and consult your financial advisor before making any financial decision. This article should be treated as my personal view.


Reason 1 – Rating


First and foremost, rating. CRISIL has rated these JM Financial NCD as AA/stable and ICRA as AA. Top ratings from both of them are AAA. Rating given to this NCD is next level of rating from top rating. What it means high degree of safety regarding timely servicing of financial obligations. You can see information of ratings here – CRISIL & ICRA . Such instruments carry very low credit risk.

Reason 2 – Interest Rates


JM Financial NCD offers yield of 9.5 to 10 % is very good at current interest rate scenario. In near to long term, interest rates are likely to get reduced further. So investing at this rate would be good.

Reason 3 – Secured


The principal amount of JM Financial NCD and all interest due on the NCDs in respect thereof will be secured… Company will create appropriate security in favour of the Debenture Trustee for the NCD Holders on the assets adequate to ensure 100% asset cover for the NCDs. So these are safer than other non secured NCDs.

Strategy for investment


How should one invest in this NCD? Only a part of your portfolio.

Though current interest rates , overall rating and secured nature – all point to invest decision, one needs to take general diversification route for better safety. Would be good to limit oneself to around 5% of debt portfolio in this JM Financial NCD . That would help negate any adverse future situation impacting you significantly.

Second aspect to consider is to invest not for too long. Though NCD offer is upto 10 years and yield of 10% for such long period is tempting, I would suggest to go for 24 or 40 months offers as its really difficult to predict how company would perform over 10 year period. This may earn you little lesser rate of say 9.5% as well as you may not get similar rate after maturity, I feel this is safer option nowadays.

Hack or clue : Since this is a taxable product, investing for people in lower tax bracket would be more tax efficient.

What are other’s saying?


You can read about Suresh KP views on JM Financial NCD here. He seems to have suggested it for high risk investors for 2 to 5 years options.

You can read view on JM Financial NCD of Roshni Agrawal from goodreturns here. She also seem to suggest to go for short term options.

Alternatives


In case you want to invest in debt instrument but not keen on this NCD, no worries. One can opt for debt mutual funds which offer easy diversification across multiple debt instruments in small amount. You can chose funds in line with risk appetite and target tenure.


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