The company will raise Rs 400 crores by way of the issue.
1) Monthly Interest Option
Under the Monthly investment option, a 12 month deposit would fetch an interest rate of 10.75 per cent for 24-months, 11.25per cent for 36-months and 11 per cent for 60 months.
2) Annual interest option
Under the annual interest option one would get an interest rate of 11 per cent for 12-months, 11.50 per cent for 36-months and 11.25 per cent for 60-months.
3) Cumulative interest option
Under the cumulative interest option the interest rate for 400 days is 10.25 per cent for 24 months is 11 per cent and 36 months 11.50 per cent and 78 months 11.23 per cent.
There is little doubt that the interest rates offered by Muthoot Finance is way above bank interest rates. Though the instruments are secure there is always an element of risk. Take a look at what the risks are.
1) Gold prices falling
The biggest risk to invest in the NCDs is if there is a crash in the gold prices. Gold Finance Companies like Muthoot lend against gold. Currently, the norm is to lend against 70 per cent of the gold value. If gold prices come crashing down people would not pay the loan and would be willing to forfeit their gold.
2) Pressure on financials
There has been some strain on the financials of the company due to RBI restrictions in the past.
3) Regulatory hurdles
The regulatory hurdles like a reduction of the loan to value amount could hit the business going forward.
1) Secured NCDS
The NCDs of Muthoot Finance excluding the 78-Month Cumulative option are secured and the company has appointed IDBI Debenture Trustees as the debenture trustees of this issue.
2) High interest rates
Interest rates on the NCDs are high. Currently, no banks can match this interest rate.
3) Credit Rating by ICRA
ICRA has accorded a credit rating of AA-by, which indicates higher safety and stable issue.
For those who are ready to take a slight risk for higher interest rates the offer is attractive. It's a typical case of higher risk, higher reward kind of public issue, which is always the case with NCDs and company fixed deposits.