Muthoot Finance NCDs- Should you invest?

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Muthoot Finance NCDs- Should you invest?
Muthoot Finance, one of the largest gold financing company in India, has come up with a public issue of non-convertible debentures (NCDs) that is open for subscription from September 2, 2013 to September 16, 2013. Now, the question is should you be subscribing to Muthoot Finance NCDs?

- High effective yield of up to 12.55%: Subscription to Muthoot Finance NCDs would generate an effective yield of up to 12.55% on an annual basis. Thus, the resultant yield would be way higher than the interest rate earned on bank fixed deposits that provide 9-10% returns depending on the investment tenure.

- Provides several investment options to choose from: The issue offers a gamut of options in case of secured redeemable NCDs which can be subscribed to by individuals depending on their investment time horizon. The different available options with their effective yield is provided below:

Option I: With a maturity time of 2 years from the allotment date and interest payable on a monthly basis, this NCD option would offer coupon rate and effective yield of 11.50 % annually.

Option II: With a maturity time of 3 years from the allotment date and interest payable on a monthly basis, the second secured NCD option would offer coupon rate and effective yield of 12.00 % annually.

Option III: With a maturity time of 5 years from the allotment date and interest payable on a monthly basis, such NCDs would offer coupon rate and effective yield of 11.50 % annually.

Option IV: With a maturity time of 2 years from the allotment date and interest payable on an annual basis, this investment option would offer coupon rate and effective yield of 12.00 % annually.

Option V: With a maturity time of 3 years from the allotment date and interest payable on an annual basis, such NCDs would offer coupon rate and effective yield of 12.25 % annually.

Option VI: With a maturity time of 5 years from the allotment date and interest payable on an annual basis, the investment option would offer coupon rate and effective yield of 12.00 % annually.

Option VII: With a maturity time of 400 days from the allotment date, such NCDs would offer an effective yield of 11.00 % annually.

Option VIII: With a maturity time of 2 years from the allotment date, such secured redeemable NCDs would offer an effective yield of 12.00 % annually.

Option IX: With a maturity time of 3 years from the allotment date, the secured redeemable NCD option would offer an effective yield as high as 12.55 % annually.

Option X: With a maturity time of 5 years from the allotment date, the investment option would generate an effective yield of 12.00 % annually.

In case of unsecured redeemable non-convertible debentures, the public issue offers one option labelled as Option XI that has a maturity time of 6 years from the allotment date and generates an effective yield of 12.25% annually.

- Backed by CRISIL and ICRA rating: 'CRISIL AA-/Negative' and [ICRA] AA- /Negative rating imply safety of the investment option. However, it needs to be remembered that NCDs are not safe as bank fixed deposits and investment into such schemes do entail an element of risk.

- Tax Benefits: Unlike, bank fixed deposits that attract TDS on interest income, tax is not deducted at source in case of interest income earned on NCDs. However, the income thus generated is include in the total income while filing the return.

So, depending upon one's investment goals and time horizon, one could consider an investment into Muthoot Finance NCDs. Though, again an important point to make note of is that NCDs offer less liquidity despite being traded on the exchange.

Caution
It's also important to remember that guidelines for gold loan companies keep changing by the RBI, which might affect the performance of Muthoot Finance. Also, gold prices have remained volatile due to the external environment which is a big risk to companies like Muthoot. Also, NCDs are not as secured as bank fixed deposits.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Greynium Information Technologies Pvt Ltd, its subsidiaries and associates. The author has made every effort to ensure accuracy of information provided; however, neither Greynium Information Technologies Pvt Ltd, its subsidiaries and associates, nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to buy, sell in precious metal products, commodities, securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article.

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