'AA'-rated NCDs: Risky to focus just on returns, say analysts

Limit exposure to 5-15% of debt portfolio, avoid investing for very long tenures

Many players have launched ‘AA’-rated non-convertible debentures (NCDs) in recent times. These bonds promise higher rates of return than fixed deposits of frontline banks or ‘AAA’-rated bonds. Companies such as Indiabulls Housing Finance, Edelweiss Financial Services, JM Financial Services, IIFL Home Finance, IIFL Finance, Muthoottu Mini, and Indel Money have come out with such issues. 

Investors are likely to consider these instruments in the current low interest-rate environment. However, fixed-income investors face a dilemma. 

If they prioritise preservation of capital, they end up with low returns. And if they try to earn higher returns, they end up taking credit risk.