Manappuram NCD lists at a discount

by Manshu on September 15, 2011

in Fixed Deposits

Manappuram NCD listed yesterday, and the 2 year series went as low as Rs. 950 before closing at Rs. 973.

This is the second NCD that has listed at a discount (after India Infoline Investment Services Ltd.), and that too despite the fact that it had a good coupon rate of 12.20%.

Both these NCDs now have at least one series that trades at a yield of over 13.5%, and that’s better than the yield that’s going to be offered by Religare Finvest NCD which is the next one in line.

This is certainly quite an attractive yield, and in the case of IIIFL you can lock it for 5 years whereas in the case of Manappuram the tenure is 2 years.

The market movements show that you could potentially get these NCDs at an even cheaper price and that makes the yield even more attractive.

Here is a list of the series of Manappuram and IIIFL NCDs along with their price and YTMs. YTM data is approximate and I’ve calculated it from MoneyChimp. I’m trying to get a better source to get the YTM numbers where I can enter the exact time remaining and get an answer.

 

Name Coupon Scrip Code / ISIN Scrip Id Price Yield to Maturity
MFL – NCD1- ZERO COUPON

 

Zero Coupon

400 days

934826 MFLNCD1 1,000 12.00%
MFL – NCD2-12.00% SEMI ANNUAL

 

12.00% Semi Annual

24 months

934827 MFLNCD2
MFL – NCD3-12.20% SEMI ANNUAL

 

12.20% Semi Annual

24 months

934828 MFLNCD3 973.99 13.84%
India Infoline Investment Services Limited 11.70%

36 months

INE866I07206 IIISL N1 980 12.54%
India Infoline Investment Services Limited 11.70%

40 months

INE866I07214 IIISL N2 980 12.54%
India Infoline Investment Services Limited 11.70%

60 months

INE866I07222 IIISL N3 960 12.83%
India Infoline Investment Services Limited 11.90%

60 months

INE866I07230 IIISL N4 937 13.72%

This space is definitely getting interesting, and while the risk of investing in smaller NBFCs is higher than investing in banks it’s hard to ignore these yields either.

Manappuram promoters have taken a loan against pledged shares which is a big red flag for me, and IIISL have large sums loaned out against shares which are volatile and that makes me stay away from that as well. So, there are reasons why SBI NCDs, or even STFC NCDs trade at a premium and these trade at a discount, and I would like to wait and watch to see if Religare NCD lists at a premium or discount.

When something appears a bit too good – I’m always concerned if the market knows something that I don’t and right now this falls under that category.

{ 67 comments… read them below or add one }

Hemant Beniwal September 15, 2011 at 8:02 am

Hi Manshu,
I like your closing remarks “When something appears a bit too good – I’m always concerned if the market knows something that I don’t know”
Yesterday I was shuffling TV channels & on a business channel one market guru was saying “ONGC FPO should be used as an arbitrage opportunity – buy FPO & sell shares” (some people also tried/trying to play similar arbitrage game in NCDs ) – this sounds similar to Reliance Power IPO “Buy IPO & Sell in market – make huge gains” & we all know what happened next. Life is not so simple + market is supreme.

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Manshu September 15, 2011 at 8:56 am

I have never been a fan of the listing gains game because you make a few percentages here and a few percentages there, but then take one big hit that kills all the profit you have made for a year. It seems like a very high effort low return process.

But I don’t understand how this game is played in NCD? What do they do?

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furqan September 15, 2011 at 10:59 am

Yes Manshu,
such kind of arbitrage “opportunities” are indeed high-risk, low-return deals.

Hemant,
Markets is indeed supreme and it always rewards long term investors.

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Manshu September 16, 2011 at 12:32 am

Yeah Furqan because they aren’t really arbitrage in the true sense like a stock trading at different prices in futures and cash or a gold ETF trading at a big premium to its true underlying or something like that.

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piyush modi September 15, 2011 at 8:05 am

YTM calculation is not a big issue. can always be done in excel easily. what i want to know is where can i see the prices? can you share link please?

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Manshu September 15, 2011 at 8:51 am

If you click on the links in the names of the NCD given in the table that will directly take you to the BSE / NSE page that shows the quote, so that’s already there.

Also, is there a way to avoid the Excel route and get the YTM numbers from somewhere? I want to do this for every NCD currently listed, and keep that list updated. It’s very time consuming to do that in excel.

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Bhavin September 15, 2011 at 12:01 pm

While I don’t know of any convenient source that gives the YTM figures, I suspect Excel might not be as cumbersome as one fears. Once you enter the formulae, you can get the ‘live’ YTM figures at any time in a jiffy. The XIRR function in Excel is perfect for this. You only need to update the live price manually into Excel from perhaps NSE/BSE, while all the other figures can be entered as a formulae/function (e.g. today’s date and dates of interest payouts/compounding) or fixed value (e.g. maturity date, maturity amount and interest amounts). Please do correct me if I am missing something.

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piyush modi September 15, 2011 at 12:08 pm

And u don’t need to updatw manually in excel also. It supports a function using which it automatically extracts data from web pages. Just link to the particular data on the page once and choose autoupdate.

Also the same can be done in google docs excel also. Then you can simply share d doc n ppl can chk up d prices yields any time they want. I don’t knw how its done in google docs though. Google it. For excel I can help u wid the autolinking

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Manshu September 15, 2011 at 5:56 pm

Thanks Piyush, Bhavin – I’m going to try and set this up in Google Docs – I haven’t used the auto update feature of Excel with much success but I guess this is a good opportunity to do that.

Thanks for the ideas.

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Bhavin September 27, 2011 at 11:54 am

Very interesting thing I see today on the L&TFINANCE-N2 NCD. The N2 series offers semi-annual interest at 9.62% on the face value (Rs. 1000) on 30th Sep / 31st Mar, and matures on 17-09-2014. The current offer price on NSE for this is Rs. 989. The YTM for this then works out to be a whopping 12.364%. Even allowing for the brokerage of 1%, it works out to be 11.917%. The other series (e.g. N1, N3 etc.) are far away from this figure. Am I missing something?

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Anand Sodo September 27, 2011 at 5:26 pm

My dear friend you have got all your calculations wrong – on the face value you earn interest of Rs. 98.51(yearly) which when calculated on 989 will give you an yield of 9.96% only and not 12.364 which you have calculated.

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Manshu September 28, 2011 at 4:14 am

Anand – you are taking current yield whereas Bhavin is taking YTM which is more accurate since there will be a gain when you redeem the bond at 1,000 while you buy it for only 989. As far as I can tell you aren’t missing anything Bhavin, the YTM for this series is higher than others – though I don’t know why that is so.

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Bhavin September 28, 2011 at 11:21 am

Thanks Anand, Manshu.
One reason my calculations show the YTM the be >12% is that the NDC is trading cum-interest. Today is 28th and they will pay out ~48 per NCD on the 30th Sept., which is ~4.9% and I think that makes the yield go higher. But I am stumped as to why the same logic doesn’t work on the other series, N1, which is of the same duration but pays out quarterly interest instead of half-yearly.

Anyway. My family has bought 100 NCDs yesterday at 989. Time will eventually show whether I spotted a good bet or whether I miscalculated.

Today its trading at 987! Go figure! 🙂 🙂

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Bhavin September 29, 2011 at 4:05 pm

Just found out what was I missing: I made the mistake of assuming the record date would be two days before the payout date! It turns out the record date is actually 15 days before the payout date, so in this case it was 15th Sep. So my yield drops to close to what Anand said. However this is still marginally better than the FD rate in say SBI or HDFC Bank, so I am not too disappointed. And L&T is fairly safe too. 🙂

Arvind September 15, 2011 at 8:34 am

lots of useful information. thanks.
as you so aptly put at the end of your post ‘ if something is too good to be true it probably is’.

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Manshu September 15, 2011 at 9:00 am

I think after this market develops and I’ve seen it work for a few years I’ll be more comfortable investing it it – for now I’m being cautious.

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ankm83 September 15, 2011 at 10:09 am

price being dynamic, the 400 day is now trading at 981, yield>14%. Good option for short term paper

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Manshu September 15, 2011 at 5:58 pm

That surprises me a bit – it’s just 400 days, and it’s trading at a discount, why do you think that is?

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ankm83 September 15, 2011 at 10:42 pm

the price of 980 was a temporary disequlibrium, price turned back and closed at 996. An investor from primary market would have effectively bought at 990 (considering he gets 1% commission from broker), so this closing price is fair.

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Ashok September 15, 2011 at 2:21 pm

I am wondering what kind of investors are selling these NCDs? I mean you buy these NCDs if 20 days back it was good enough for investment, why to sell it at a 2%-3% loss?

Anyway, as you have rightly put it, it is better to stay away.

A related question about FMPs: Some of the FMPs are listed on NSE/BSE. What is their trading volume? Do we get buying opporutinities in FMPs (from probably some investor in some need for liquid cash)? If we get some great opportunities at a discounted price to buy a HDFC MF or ICICI Pru MFs FMPs, that would be something !!

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Manshu September 15, 2011 at 6:00 pm

I think it’s mainly punters and speculators as Hemant said earlier, people who weren’t interested in holding to maturity but were only interested in the listing gains.

I don’t know about the FMP question – I’ll research and let you know.

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ankm83 September 15, 2011 at 10:46 pm

ya these punters, are interested in churning the same money ‘n’ number of times, rather than locking it for 2 years in a fixed income instrument!

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Sahil September 15, 2011 at 7:18 pm

Manshu,
IFCI is back again with series III 10.75% bonds for 15 years. (from 5 sept to 20 oct 2011, private placement. by the way what is this private placement??)
Why people are selling these bonds at such huge discount is really a big question?
If gold company or iiisl are having some issues, they were there at the time of application also.
So why one should panic and sell at a huge loss of 5 to 7 pc within 20 days?

Please give details of new ncds bonds other than religare and ifci series III.

Thank you.

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Manshu September 15, 2011 at 7:49 pm

Oh wow – they are back with another new offer? I didn’t know that at all – thanks for letting me know.

I think the people who are selling are people who bought it for listing gains only, and didn’t intend to hold it to maturity at all.

Private placement is when a company doesn’t need to go to the exchange to offer the shares or bonds, but eventually this will get listed on the exchange so the effect is the same.

Also, please let me know which other new NCDs you were talking about at the end of your comment, didn’t get that part .

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Manshu September 15, 2011 at 9:05 pm

Hey Sahil – do you have a link or something on this new issue? I Googled it up, but couldn’t find any info. Thanks!

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Paresh September 15, 2011 at 11:38 pm

Issue is nearly same as earlier one.
I was informed investors briefly through this minipost..
http://www.saving-ideas.com/2011/09/ifci-tier-2-subordinated-bonds-series-3/

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Sahil September 16, 2011 at 12:13 am

pl google with .. ifci series 3 bonds. in last part of previous post i requested info on new bonds, if any that you know, except ifci and religare. thanks

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Manshu September 16, 2011 at 12:34 am

Thanks Paresh – That link was helpful – I got some info and the exact name to be able to search for its offer document online.

Hey Sahil – I don’t know of any other NCDs that are going to list soon, but will write about them if I find any. Thanks for the info on this one.

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Paresh September 15, 2011 at 11:16 pm

I have online trading account with HDFC Sec and IDBI paisabuilder.

Today i have tried to buy manappuram fin NCD. But this script is not there in their list, so i could not brought the same.

Will you suggest / guide how to buy this NCD at discounted prise through HDFC sec or IDBI paisabuilder from BSE or NSE.

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Manshu September 16, 2011 at 12:33 am

I’m sorry Paresh but I don’t have access to HDFC Sec or IDBI to be able to do that, but I did notice that these options weren’t coming in ICICI Direct yesterday either so maybe we need to wait a few days before being able to trade them through online platforms. Just a guess.

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Sahil September 16, 2011 at 8:32 am

From the bse page i found that religare had some private placement of bonds 12.75 pc interest. they listed on bse in first week of aug. dear retail investors- just forget to buy them even now- as the face value is 10 lac.

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piyush modi September 16, 2011 at 9:13 am

Whats the current yields on this? I am assuming that Religare would be a better credit than indiainfoline or manappuram or muthoot..

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Sahil September 16, 2011 at 11:53 am

Not sure, never checked the scrip code and other details as one bond of 10 lac is completely out of range here.
You may find the bse code from new listing notices in the first week of august from bse.
they listed nearly same time as of ifci bonds.

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Raju September 16, 2011 at 11:57 am

Can you pls advise web site or provide link where i can live quotes of NCD’s. Want to check listing price/current trading price of UTI, RELIGARE, MFL etc
thanks

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Manshu September 18, 2011 at 10:47 pm

You can go to the NSE or BSE website and search for the quotes there. I don’t have a list of ticker names etc. sorry.

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Mad hab September 18, 2011 at 11:55 pm

Hi Manshu,
Do you have the info on the interest payment dates and also the dates from which interest will be calculated?

These are required to calculate the yields.

~Madhab

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Manshu September 19, 2011 at 1:13 am

Hi Madhab,

I can go to the prospectus of each of the issues and find the dates, and that’s one of the reasons I don’t want to calculate these for all of them because Manappuram is semi annual interest, some others are annual, and then the dates are different for different bonds.

From maintaining the fixed deposit interest page I know how hard it is for me to keep a track of just simple interest rates across say 20 banks or so and I’m fairly certain I won’t be able to keep this list current if I have to do the calculations myself.

I don’t have a good solution to this yet, let’s see.

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Narayana September 19, 2011 at 6:21 pm

Dear Manshu, I like your final comment – “When something appears a bit too good – I’m always concerned if the market knows something that I don’t and right now this falls under that category.”
As per the article in Economic Times few days back, this IIIFL NCD initial heavy discount was because of some big brokers’ manipulations in the grey market. The link for the article is
http://articles.economictimes.indiatimes.com/2011-08-26/news/29931757_1_ncd-issues-grey-market-listing-day

Also, regarding Mr.Ashok’s question dt September 15, 2011 at 2:21 pm
“I am wondering what kind of investors are selling these NCDs? I mean you buy these NCDs if 20 days back it was good enough for investment, why to sell it at a 2%-3% loss?”, I would like to make a guess – These investors are not actually selling at 2% – 3% loss, rather they are selling at 0.5% – 0.7% profit because they would have received upfront commisions of 2.5% – 3.5% from broker/company!! That is why market knows something that we don’t know right now!!!
By the way, Non-Convertible Debentures of Muthoot Finance Limited will be admitted to dealings on the National Stock Exchange (Capital Market segment) with effect from September 20, 2011.
It will be interesting to watch if they also eventually trade at discount…
http://www.nse-india.com/content/circulars/cmls18897.zip

Bye for now,
Narayana

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Manshu September 19, 2011 at 8:25 pm

Thanks for those links – I’ve written earlier how ridiculous these listing gain games in NCDs are and I’m quite glad to see these busts because otherwise it would crowd out retail investors from this market, something that had already started to happen.

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Narayana September 19, 2011 at 7:41 pm

Few more observations on the current NCDs going at discount:

1. In case of IIISL NCDs, only N4 series is trading at maximum discount (LTP 939 for fv 1000 as on 19Sep11). Other series NCDs N1, N2, N3 are not showing that much of discount. My point is: If the discount was due to risky nature of IIISL loan assets, then all the NCDs (N1, N2, N3, N4) should have exhibited similar discounts! But this is not the case. The total no. of NCDs allotted is maximum in N4 series, hence currently there is perhaps much more selling pressure in N4 due to grey market brokers dumping these N4 NCDs in the market.
Also, I cannot believe that investors initially subscribed for these NCDs at Rs.1000 to the extent of causing over-subscription & then discovered the risky nature of IIISL loan assets after NCDs were listed for trading.

2. Also, I feel that, over a period of time (ignoring interest rate changes for the time being), IIISL N4 may move upwards towards 960/970 and other NCDs (of similar credit rating) like SRCUF N3 may move downwards from 995/1000 to 960/970 due to arbitrage operators in the market. i.e. investors having SRCUF N3 will be tempted to sell them and put back that money in the cheaper IIISL N4 so that they can make a short term gain of 995-970 per NCD (2.5% approx gain on the fv of the NCDs). This is possible because both these NCDs have similar credit rating and similar coupon rates.

Bye for now,
Narayana

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Manshu September 19, 2011 at 8:23 pm

Thanks for your thoughts Narayana – the trouble with all this in my opinion is that the upside is limited and the downside is simply not worth it. I wouldn’t like to invest in any debt instrument that has me speculating or wondering about its future all the time.

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ankm83 September 20, 2011 at 2:34 pm

by present value formula itself, longer tenure bond will trade at steeper discount if yield of bond increases beyond it’s coupon rate (because of increase in interest rate or perceived riskiness of holding for a longer duration). For eg. Even if u spread across a cash flows of a both 3year and 5 year bond at a the same YTM or IRR, and back calculate the intrinsic price (using goal seek), the 5 year bond will trade at a discount, even if we consider 25 bps higher coupon rate for the same. Try doing the same even for Muthoot or IISL NCD.

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ankm83 September 20, 2011 at 2:44 pm

also in general, as yield curve is upward sloping, it implies steeper discount over face value for the longer maturity bond.

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Narayana September 20, 2011 at 10:35 pm

Muthoot Finance NCDs got listed today on NSE.
MUTHOOTFIN-N6 (12.25% annual coupon, 60 months duration, Credit Rating :‘CRISIL AA-/Stable’ from CRISIL ‘[ICRA] AA-(stable)’ from ICRA ) opened at abt 975 (fv 1000) and went all the way down to 940 before closing at 943. On this closing price, we have YTM of 14.1% pa!!

It appears that buying these NCDs after listing is better than buying them on primary market!

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Beena September 22, 2011 at 3:41 pm

What is the BSE Code Of Muthoot finance NCD.

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Narayana September 22, 2011 at 4:06 pm

BSE Security Code : MFINNCD1F / MFINNCD1D

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Madhab September 30, 2011 at 11:45 am

Mansh/Bhavin,
To do any calculation for the yields you need to know the exact dates on which the interest will be paid by the company. Where do you get that info from?

~Madhab

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Bhavin October 3, 2011 at 10:15 am

Hi Madhab,
In this case I have the ‘allocation letter’ from L&T Finance that they sent me when I had originally subcribed to the NCDs in Sept. 2009. I subsequently sold them off in Mar 2010 with ~11% gains (absolute), and was looking to re-enter last week.

However this information is also available in the offer prospectus and corporate announcements on the NSE website. Click on the “Company Information” tab on the link below and you will see the ‘record date’ announcements. (http://nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=L%26TFINANCE&series=N2)

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utkal patel October 3, 2011 at 10:55 pm

hi pls provide me Excel sheet
thanks

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Shikhil October 4, 2011 at 5:25 pm

Hi,
What about using yield() function in excel. After adding the analysis tool pack in add ins.
Is this function reliable, after reducing the accrued interest from the traded price.

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Bhavin October 5, 2011 at 12:04 am

Hi Shikhil,

The YIELD function doesn’t seem to work as required in this case. I do not know why this is so. I experimented a bit, but it kept throwing inconsistent figures. However note that this works on a ‘per 100’ logic, so if you have an NCD with face value 1000 or 1 lakh, then you need to adjust for it manually into Excel, which makes it a bit more tedious.

Personally I am biased towards the XIRR function 🙂 but I would definitely like to understand why the YIELD function behaves differently, so do share it with us if you figure it out.

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ramamurthy October 10, 2011 at 3:12 pm

Hi Manshu
Thanks for clarifying my query re.Manappuram NCD(MFLNCD3).The link you have provided (bseindia/bseplus) is extremely informative & again thanks for the prompt reply.

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Surinder Arora December 18, 2011 at 7:18 pm

Dear

I want to know that if I purchased any NCD from open market now .Can I get the annual interest for whole year or partially when i purchased.

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Manshu December 19, 2011 at 1:27 am

Yes, you will get the whole interest if you own the bond at the record date.

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dk June 27, 2012 at 10:50 pm

Series: N1 N2 N3 N4 means? and what is basic point kept in mind for good investment in bond ?

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K V Subba Rao August 29, 2012 at 12:33 pm

Please guide how to find live quotes and YTM of NCDs traded on BSE

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Kush Sonigara August 31, 2012 at 6:11 pm

True Bhavin!! Even I think XIRR is by so far the best method. I know I am too late to comment!:)

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Manshu September 29, 2011 at 4:32 pm

Hi Bhavin,

Where are you calculating these yields? Are you calculating it yourself or referring to a website?

Have you looked at the Edelweiss website – they calculate the yields too and here is the link:

http://www.edelweiss.in/Debt/DebtSnapshot.aspx?cn=L_TFINANCE-N2

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Bhavin September 30, 2011 at 11:24 am

Hi Manshu,

I hadn’t seen the Edelweiss website, thank you for sharing. However I notice the website shows the yield to be 12.35% in the said example, which is somewhat misleading since the actual yield is much lower, as I learned the hard way this week! They seem to have missed two points: (1) the record date is long past so if you adjust for that, then the yield drops to 10.3%. and (2) most of us pay a brokerage of around 0.5% (plus taxes) on each leg, which reduces the yield a bit further. However the good news is that (1) this is still better than FDs in most banks and (2) one hopes that once the interest rate cycle peaks, the market price of the NCD will rise giving slightly better returns than the ~10% we see today.

Most of these websites tend to publish figures without taking these ‘exceptions’ into consideration, so I am reluctant to accept their figures at face value. I usually calculate everything myself using Excel, typically using the XIRR function. Of course, it doesn’t help me prevent each and every mistake, I still end up making mistakes! One continues to learn! 🙂

PS: I can share a portion of my Excel file with you if it helps.

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Manshu October 4, 2011 at 6:13 am

Yes, please do – email onemint at gmail dot com

Sorry for getting a little late in replying – got tied up with other stuff.

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ramamurthy October 10, 2011 at 3:25 pm

Edelweiss data is incorrect. For Example for shriram tranport NCD option 5(shrirammcit-N5) which has a coupn rate of 10.75%,with 2 Years maturity the ytm is given as 14.04% which is wrong.I dont think it is wise to rely on their ytm data. Pl correct me if I am wrong.

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Bhavin October 12, 2011 at 8:46 am

I have sent it last week. Please confirm you got it, and whether it helped.

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Manshu October 11, 2011 at 5:24 am

Yeah, the YTM data is incorrect in some instances (which I realized later on) and unfortunately there is no good resource on that info right now. But at least for price this is a pretty good resource.

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K V Subba Rao September 20, 2012 at 5:22 pm

Earlier YTM calculations were displayed correctly.In the initial stages, I made calculations myself in excel and found YTM figures correct. From that time onwards, I started picking up NCDs giving highest YTM for purchase. But later on, I have noted that on one occasion, I made wrong purchase based on YTM figure in this site. It appears as though they are not considering “Record Date” for interest payment. Since that time onwards I have stopped relying on YTM information in this site. Now I am visiting NCDs sheet in icicidirect.com. These figures are correct. Here also, YTM shown in icicidirect.com has to be slightly reduced for Brokerage for buying in secondary market.

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Manshu October 13, 2011 at 5:22 am

Hey Bhavin – No I didn’t get it man – can you please send it again – let me know once you send it and I’ll look for it carefully. I don’t know what happened this time.

onemint at gmail dot com

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Bhavin October 13, 2011 at 11:01 pm

Re-sent. Hope it works this time. Also, do check the spam folder. Cheers.

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Manshu October 14, 2011 at 5:36 am

Got it buddy – thanks! Very impressive.

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