Shriram Transport NCDs: Should you subscribe?

Updated: Tuesday, July 16, 2013, 13:31 [IST]

Shriram Transport Finance Company (STFC), an NBFC company with prime focus on commercial vehicle and ancillary parts financing has come up with a public issue of secured non convertible debentures (NCDs).

The public issue would remain open from 16th July'2013 to 29th July'2013 for high net worth individuals (HNIs), institutional, non-institutional and retails investors, subject to an option with the authorized directors of the company to extend or close the offer before the stipulated time.

Arguments in favour of subscription to NCDs of STFC

1. Higher effective yield of the secured NCDs on offer in comparison to Bank FD rates:

With banks offering up to 9% interest on fixed deposits, STFC NCDs emerge as better investment options providing effective yield of 9.65% -11.15% for maturity term of 3 years and 5 years.

The effective yield for individual investors is 10.90 per cent and 11.15 per cent for a three and five-year maturity tenure, respectively. The effective yield for non-individuals is 9.65 per cent and 9.80 per cent for three and five years, respectively.

2. Interest rates expected to fall, retail investors can capitalize on additional returns of NCDs:

With interest rates expected to fall in the near term, retail investors can leverage on additional returns of 123-125 basis points to be provided by NCDs of STFC.

3. Liquid investment option:

As the NCDs on offer would be listed on the stock exchanges, invested amount plus capital appreciation on the investment could be easily redeemed through the trading route. Nevertheless, as listed NCDs are not traded in huge volumes, bulk selling could be troublesome.

4. CRISIL and CARE rating:

CRISIL has rated the public issue on offer for NCD's by STFC as AA/stable whereas CARE has rated it as AA+. Such ratings signify an high degree of safety with respect to the company's efficacy in meeting its financial obligation of principal and interest amount in time. Despite this corporate NCDs do hold an element of risk and are not risk-free as against bank deposits which are though risk-free.

5. Tax Advantage:

The interest earned from the NCDs will not attract TDS , however, the interest income will have to be added to the total income when filing income tax returns..

6. NCDs available in 5 series:

Series 1 for a tenure of 36 months with annual coupon of 10.9% would offer payout on annual basis

Series 2 for sixty months or 5 years tenure offering 11.15% coupon rate would also tender annual payout.

Series 3 for sixty months with 10.63% annual coupon would provide payout on a monthly basis catering to the financial requirements of retired individuals and pensioner.

Series 4 and Series 5 NCDs are cumulative options without interest payments on a period basis for three and five years. Both the Series are redeemable at a premium amount. The effective yield of Series 4 and Series 5 NCDs is computed as 10.9 and 11.15% respectively.

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