Why New York is the Financial Capital of the World!

Every person who is interested in the stock markets should visit New York at least once in his or her lifetime, which is widely considered to be the financial capital of the world. Here is our take on the largest city of the United States.

We all know a little about New York, don’t we?

New York is one of the most prominent Global Finance centre of the world and houses two of the largest exchanges, namely; NYSE and NASDAQ, and the New York Mercantile Exchange- the largest global Commodity futures exchange. The first thing that one notices after arriving in New York City is the hustle on the streets as most residents prefer walking or cycling over any other mode of transport. Unlike the Indian railways, you will not find overcrowded trains or the mad rush to grab the first empty seat in the trains. There exists a separate culture which every person needs to follow while commuting through the city. Things such as keeping your pace with the crowd, keeping to the right while climbing the stairs must be kept in mind etc. or else one must be ready to face the wrath of the local residents.

Why is it the Financial Capital of the World?

NYSE

The NYSE is the closest thing to being a personification of the Stock Markets which a person can come across. The grandeur of the building as well as the trading floor is most alluring. However the sight is a stark contrast to the people who work in it throughout the day and most of the night. Just by standing outside the NYSE one realizes the value of every single moment as each and every person out there does not even waste a second on a non-productive activity. Every person has a strict agenda and they adhere to it. However,people are generally dressed to perfection, guys in Armani blazers and girls in dresses, high heels and Gucci bags.The feeling of seeing the BULL poised gloriously outside the building is unmatched. Generally there is line to click a photograph with the powerful mascot representing the markets.The NYSE lives up to its hype and refuels ambitions of youngsters to work there at least once in their life.

New York Charging Bull

NASDAQ

NASDAQ (which stands for National Association of Securities Dealers Automated Quotations) is too a must visit for a person touring New York. The history of this stock exchange is probably only matched by the NYSE. It was the first stock exchange to form a intercontinental linkage of stock markets by coordinating with the London Stock exchange and is the second largest stock exchange in the world.

Both the Dow Jones as well as the NASDAQ are the most widely tracked stock markets as they represent the largest economy in the world. They have since Year 2000 generated an average return of 5% and 4.5% respectively. These two bourses are the largest stock exchanges in the world by market capitalization.

Melting Pot?

New York has lavish penthouses atop almost every building. Most of these are generally owned by the “bulls” governing the markets. New York considering its large number of immigrant population is aptly called the ‘Melting Pot’ by many. In our opinion every person working in the finance industry or aiming to be a part of it must visit New York at least once in his lifetime as the city gives immense inspiration to these young souls to make it big in the financial markets.

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Understanding NCDs

NCDs or non convertible debentures in the recent past has taken a significant bandwidth in the Retail and HNI debt market, with the option to liquidate the instrument in the secondary market it has an advantage on other debt instruments in the retail arena. So let’s first understand what NCDs are and how an investor can invest and fit this instrument in his financial plan.

Non-Convertible Debentures (NCDs)

Understanding NCDs

Some of the debentures are termed as convertible debentures since they can be converted into equity share on maturity. A Non – Convertible debenture or NCD do not have the option of conversion into shares and on maturity the principal amount along with accumulated interest is paid to the holder of the instrument.

Types of NCDs
There are two types of NCDs-secured and unsecured. A secured NCD is backed by the assets of the company if it fails to pay the obligation, Contrary to this there is no backing in unsecured NCDs if company defaults. However, any company seeking to raise money through NCD has to get its issue rated by agencies such as CRISIL, ICRA, CARE and Fitch Ratings. A higher ratings (e.g. CRISIL AAA or AA-Stable) means the issuer has the ability to service its debt on time and carries lower default risk. A lower rating signifies a higher credit risk.

Debt Investment Options

Interest Rates in NCDs
Average rates in last few years have been 11-12%. Most of these were secured NCDs. Also, companies which carry higher risk give more than others to lure investors for investment. There can be various options for interest payout such as monthly, quarterly, half yearly or annually. However, most NCDs offer annual and cumulative payout. Investors who wish to earn higher returns opt for cumulative option where the interest is reinvested and paid at maturity.

Capital Gains

Any gain earned through selling in secondary market is termed as capital gains. What gains an investor will make depends on the interest rate scenario.

Taxability

The interest earned on NCD is clubbed with income of the bond holder and is taxed at individual marginal income tax rate. Short term capital gains which arises by selling NCD before one year is taxed as per the income slab of individual holding the instrument. Any gains which arises by selling NCD after one year and before maturity is taxable as long term capital gains.

Risk Involved
NCDs have some inherent risk associated which an investor has to take into consideration before making any investment decision. The company can default on the future payment if it is an unsecured NCD. Most companies get rating through agencies like CRISIL or CARE based on various parameters which investors can check for credibility. A rating of AAA by CRISIL is considered to be highest on safety. Even if NCD get listed, low volumes (case of low rated NCDs) can deprive investors of any opportunity in exiting prematurely.

How to Trade

NCDs can be either bought in the public issue or directly from the Stock Exchanges as most of the NCDs are listed on NSE. NCDs are normally traded at a 1-2% discount to their fair value on exchanges, which really makes it an attractive investment option via the Secondary markets.

Liquidity

Currently as the Debt Markets in India are still in very early stage, the liquidity and spread in some NCDs is too thin. However some selected NCDs have good liquidity, but still intraday trading is not purely advisable in NCDs as of now and the investors should take these instruments according to their financial goals.

NCDs in Financial Planning

NCDs are good instruments specially to serve in the Debt side of the asset allocation in the financial planning of an individual, specially the individuals who are in the retirement or near to retirement age can use this instrument as a pension investment to earn monthly interest income and take the taxability advantage of this instrument.

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