NCD offering interest rate up to 9.70% p.a. issued by Edelweiss Financial. Should you invest in it?

Details of the NCD


Issuer: Edelweiss Financial Services Ltd.

Instrument Details: Secured redeemable NCD

Dates: 6th Dec 2021 - 27th Dec 2021

Minimum Investment Size Rs. 10,000/-

Credit Rating: AA Negative

Interest Rates, Tenor: As detailed below

For 2 years - 8.75% p.a.

For 3 years - 9.10% p.a.

For 5 years - 9.54% p.a.

For 10 years - 9.70% p.a.


Pros

  1. High-Interest Rates offered across various tenor options

  2. The NCDs will be listed on BSE Ltd to provide liquidity to the investors.

  3. The NCD is secured. Secured NCDs are safe compared to unsecured NCDs. In case the company gets wind-up/shut down for some reason, secured NCD investors would get preference in repayment of capital along with interest as those backed up by assets of the company. Hence it is comparitively safer to invest in secured NCD than unsecured NCDs.

Cons

  1. The NCDs proposed to be issued under this tranche have been rated AA- with a negative outlook by rating agency Crisil Ltd and AA with a negative outlook by Acuité Ratings & Research Ltd.

To judge the quality of an NCD issue, the most widely used tool is the credit rating, which is issued by rating agencies. Usually, issues that are rated AAA are understood to be safest. Nivesh Mitr suggests that retail investors shouldn’t dabble in issues that are rated below AA/AA+.


2. Further, Edelweiss Financial Services’ reported a loss of about ₹2,000 crores in FY20 and a profit after tax of ₹250 crores for FY21. So, financial performance remains a little dicey.



Our Take

The debt market is mainly meant for capital protection and preservation and is not meant for growth or earning higher returns or chasing higher yields.


The next 2 years appear positive and stable for the economic growth and hence, we recommend opting for 24 months tenor (offering 8.75% p.a.) but do keep in mind the credit risk it contains.


If looking for 3-5 years, we'd rather recommend opting for Hybrid Mutual Funds (expecting a return of 7-9% p.a.) with much lower risk than this NCD. You can read about them here.


If you can park your funds for more than 5 years, investing in equity (via Mutual Funds, Smallcase, PMS) is the recommended option as we're currently overweight on equity.



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