the retail investor / saver is a very funny animal. When interest rates are low, he will crib about interest rates being too low. When interest rates go up he/she will worry about interest rates being too high, and will worry about that.

Let us take a retired man who is about 80 years old. He wanted to know how safe was his money in Dhfl deposits. He was worried about his debentures worth Rs. 100,000 which was now worth Rs. 65000 in the market. He also wanted to know whether the forthcoming India bulls Consumer finance issue was worth investing in

Now come to the size of his portfolio – he has about Rs. 90,00,000 in various investments. His expenses are NIL. He stays with his son and son pays for all his expenses.

So why the chasing of alpha? (I mean the return over and above SBI fixed deposit). I have no clue.

If you invest in a fixed deposit, you run a risk that you will lose the whole money in one shot. In equity investments you never (rarely) lose the whole money in one day – the loss is far more gradual. If you had bought GMR Infra at Rs. 71…it came down slowly to Rs. 9. You always get a chance to get out during the journey.

To my mind the need to take risk is necessary -and then the ability to take risk is to be considered. So this man does not need to take risk, so his ability to take risk DOES NOT MATTER.

Are current interest rates high? I would not know. However an Indiainfoline, Dhfl, or Indiabulls CANNOT get money at less than 11%pa from banks. So they have to come to the capital market and raise money. Not long ago Dhfl raised money at 9+ rate of interest, Indiainfoline raised Rs.2000 crores (I don’t know if they had a greenshoe option), and now Indiabulls is raising money at 11% p.a. Yes of course it is higher than the 9%p.a that Hdfc pays or 8% that Hdfc bank may be willing to pay. Or even what Icici bank is willing to pay..but that is how it is. The Inter bank market never dries up – remember there is RBI always willing to lend. So the overnight market can go as high as 60% p.a for a day or two, but it NEVER dries up. However for Nbfc, there is no inter bank market where they can borrow.

So Nbfc building up a war chest – whether at 9% or at 11% is not unheard of. Yes all of them will go through some cash crunch, some payments will be delayed but will a default occur? I do not know.

Now let me explain. I recently bought some Dfhl at sub 200 price thinking that the fall from 600+ was over. However the cobrapost hit the share and is now near the Rs. 100 mark – and it is a 50% fall in that part of my portfolio. I have not averaged, and I will buy more if the fall stops. However, I am not a player in the debt market and so a marked down debt is not mouthwatering for me. However a debt player could take a punt even on the debt. That is what markets are meant for.

If I can buy a 9% debenture with a FV of rs. 100, my yield is awesome OVER A 5 year period because of the Rs. 35 that I will get at maturity. Good deal? well it depends on what Crisil says. Crisil of course (as usual) is silent on Dfhl – or at least I have missed it. If the ytm is 22% for an investment grade debenture why invest in Indiabulls at 11% pa?

Your call whether interest rates are high or low.