Publication: Business Standard, Mumbai; Date: February 12, 2010
Compare the post tax returns and tenure of debt instruments before investing.
Last week, the first indications of a rising interest rate regime emerged. For one, Union Bank of India announced an interest rate of 7.25 per cent on fixed deposits for 550 days. Also, L&T Finance launched a 8.4-8.5 per cent coupon rate on non-convertible debentures (NCD) to raise Rs 250 crore, with the option of scaling it up by an additional Rs 250 crore on oversubscription. This was the second NCD issue by L&T Finance, following the success of its earlier issue which offered coupon rates of 9.51 and 10.24 per cent, depending on a 5-or 10-year tenure, respectively.
L&T Finance’s recent issue gives an indication that there might be no appetite for longer tenure NCDs. And, hence, the tenure is of a shorter duration of three years this time.
Interest rates had fallen in the past several months but there are indications that they might be on their way up. Hence, it is important to decide on your debt strategy for the next one to three years.