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Non-Convertible Debentures: Deepak Lalwani’s Trilemma

ET Cases , 5 pages
AUTHOR(S) : Y Bala Bharathi and Dr. Nagendra V. Chowdary

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Non-Convertible Debentures: Deepak Lalwani’s Trilemma


Deepak Lalwani (Deepak) aged 28 worked for an IT firm as a junior software engineer. He received an annual pay package of 5 lakh, out of which ₹2.6 lakh is spent for personal expenses as well as for insurance/investments of nearly 1.4 lakh. After meeting all the mandatory expenses he was left with investible funds of 100,000 (Exhibit I). Deepak wanted to invest these funds in avenues that could assure him reasonably good returns. Nevertheless, he was not very comfortable investing in volatile equity markets which reflected fluctuating fortunes. He was neither interested in investing in banks nor corporate fixed deposits which offered lower returns. He was on a lookout for such investment avenues which could offer him good returns with reasonable risk that he was willing to take.

Being a novice investor, Deepak was not very sure about the investment avenues which would suit his risk profile and financial requirements. He discussed about this dilemma with one of his close friends, Rohit Suri (Rohit), with whom he usually shared all his financial dilemmas. Being a good friend of Deepak, Rohit sensed the need of professional help for Deepak rather than vague solutions. Hence, Rohit referred Deepak to a well-known financial consultant, Anirudh Sethi who was adept at giving viable solutions to varied investors depending on their riskreturn appetite........


Exhibit I: Deepak Lalwani’s Annual Expenses & Investments

Exhibit II: Bond with the Best

Exhibit III: Shriram Transport Finance NCD – Interest Chart

Exhibit IV: Muthoot Finance NCD – Interest Chart

Exhibit V:ECL Finance NCD – Interest Chart

Teaching Note Preview

Non-Convertible Debentures: Deepak Lalwani’s Trilemma



Investments in any financial instruments are fraught with uncertainties. With all the available information (E-I-C analysis, Valuation techniques-based analysis, etc.), the risk can be mitigated to a great extent. Given different investment objectives of different investors, selecting/suggesting financial instruments becomes even more demanding, as highlighted in the caselet. This caselet was very effective in highlighting the riskreturn trade-off vis-à-vis the investment objectives of investors (Institutional vs Individual) in the background of Non-Convertible Debentures (NCDs).

Prerequisite Conceptual Understanding

The participants of this caselet are expected to have working knowledge of the following for an effective classroom discussion:

  • • Modus operandi of debt and equity markets
  • • Fixed Income Securities concepts (Coupon rate, Market price, YTM, Credit ratings, etc.)


Expected Learning Outcomes

At the end of this caselet, the participants are expected to have working knowledge of the following:

  • • NCDs vis-à-vis other debt market instruments
  • • The pros and cons of investing in NCDs
  • • Tax implications of NCDs


Positioning and Setting

This caselet can be used for any of the following modules/courses:

  • • Financial Management course – Valuation of securities
  • • Security Analysis and Portfolio Management course – Investing in fixed income securities


Assignment Questions

  • I. What are the distinguishing features of NCDs? What is the risk-return profile of NCDs?
  • II. In what ways are they different from other debt instruments like Bank Fixed deposits, Corporate Fixed Deposits, Tax-free Government Bonds, Debt Mutual funds, etc.?
  • III. ...........



Exhibit (TN)-I: Types of Debentures

Exhibit (TN)-II: NCDs vs Bank FDs

Exhibit (TN)-III: Effective Returns

Exhibit (TN)-IV: Tax Implications

Exhibit (TN)-V: Post-Tax Returns

Rs 0
Product code: FIN-2-0005, FIN-2-0005A


This caselet can be used effectively for discussing and debating on the efficacy of Non-Convertible Debentures as a financial instrument. Deepak Lalwani, a conservative investor, never invested beyond the age-old, time tested secure investment options and usually, gratified himself with lower returns which rather seem to be safer. Investors with such mind-set prefer to invest mostly in bank or corporate fixed deposits for safer returns. Nonetheless, even the conservative debt investors have the option to earn handsome returns if they are willing to take moderate risk. Such debt investors who are in search of double-digit returns can look at yet another option called Non-Convertible Debentures (NCDs). Deepak was excited to know about this option and decided to invest in it. However, he was confronted with a trilemma of options - of choosing between the NCDs of Shriram Transport Finance Company Limited, Muthoot Finance Limited and ECL Finance Limited. Which one should he opt for? Irrespective of the fact that most of the investors get lured by the high rate of interest offered by these NCDs, do they actually yield the desired returns? What's the modus operandi of NCDs? How to assess the risk-return profile of NCDs?

Pedagogical Objectives:

  • To have an overview of debt instruments from the standpoint of investments and discuss the relative advantages and disadvantages of debt instruments in context of the risk-return canvass
  • To examine the risk-return profiles of various NCDs and help the protagonist take the appropriate investment decision

Positioning and Setting

This caselet can be used for any of the following modules/courses.

  • Financial Management Course - Valuation of securities
  • Security Analysis and Portfolio Management Course - Investing in fixed income securities

This Case Pack Includes:
 - Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)
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