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Shopping For NCDs on the Stock Market


wealthymatters.comBuying an NCD at an IPO when interest rates are high and holding it to maturity is a pretty sound idea.But buying NCDs in the secondary market can be pretty profitable too.

The prices of NCDs vary with changes in the prevailing interest rates.So careful shopping when prices fall as interest rates rise and holding on till maturity is more profitable.

If a person is good at figuring out which way the interest rates will move,he could buy NCDs cheap and exit them when their prices peak.This could potentially increase returns.

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Investing in NCDs


wealthymatters.comA non-convertible debenture is a fixed income instrument where the issuer agrees to pay a fixed rate of interest to the investor. An NCD cannot be converted into equity of the issuing company unlike convertible debentures.NCDs are good substitutes for fixed deposits,especially company deposits.

Debentures are of two types secured and unsecured. The debentures with a “charge” on the assets of the issuer are called secured debentures. So in case of a default by the issuer, the secured debenture holders are paid by selling the assets against which the charge was created. Secured NCDs offer lower interest than their unsecured counterparts. Read more of this post

Laddering


wealthymatters.comNormally,for fixed income instruments , the interest rates corresponding to longer terms are higher than those for shorter terms.However,locking in money for longer periods is not always an option.One way of ensuring a greater degree of liquidity while taking advantage of the higher rates offered for the longer tenures is laddering.

If you want to create a 5 year ladder you could buy a 1year, 2year, 3year,4year and 5year instrument .Then after the first year,renew the matured 1 year instrument for a term of 5 years.Then the following year do the same with the matured 2year instrument.Continue the process.

Laddering ensures that at least some of the higher interest rates are locked in and that the average rate is higher than the rates at the lowest point in the interest rate cycle.

If you are drawing an income from your fixed income instruments say to pay or part pay you a pension,your EMIs,a tution fee or get some passive income,laddering smoothes out the variations.

Laddering is possible with bonds,NCDs,FDs,CDs etc.

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