Mahindra and Mahindra Financial Services (Mahindra Finance) is coming out with Non Convertible Debentures (NCDs), which would open for subscription on May 25 and closes on June 10.
1) Issue opens on May 25 and closes of June 10.
2) The NCDs are AAA rated, which means they are extremely high on safety.
3) Allottment to the issue will be done on first come first serve basis.
4) Face value: Rs 1000
5) Maximum Amount retail investors can apply is Rs 5 lakhs.
Interest rate on the Mahindra Finance NCDS
|Effective Yield (p.a.):|
|Tenor||66 months||84 months||120 months||66 months||84 months||120 months||66 months||84 months||120 months|
|Frequency of Interest Payment||Quarterly||Quarterly||Quarterly||Annual||Annual||Annual||NA||NA||NA|
|Category I & Category II||8.60%||8.71%||8.80%||8.61%||8.70%||8.80%||8.60%||8.70%||8.80%|
|Category III & Category IV||8.71%||8.80%||9.00%||8.71%||8.80%||9.00%||8.70%||8.80%||9.00%|
Should you subscribe to Mahindra Finance NCDs?
We are presently living in a very low interest rate regime. In fact, interest rates have dropped from levels of near 9.3 per cent on bank deposits to 7.5 per cent in the last 2 years.
In line with bank deposit interest rates, most of the others have also cut interest rates, including company fixed deposits, post office saving schemes and companies coming out with NCDs.
The interest rate that the Mahindra Finance NCD is offering is almost similar to what you can get from company deposits. Your yield is going to 9 per cent, only if you place the NCDs for 120 months.
You can definitely get better yields elsewhere and this is not the best. Also, the holding period for a yield of say 9 per cent, is simply too long of 120 months.
However, there are some other positives of the issue. One is that they are AAA rated and hence very safe. If you believe that interest rates would fall in the immediate future, it could be an excellent bet against falling interest rates, given that one is locking-in money for the more long term.
Having said that we do not think that holding the NCDs, with such long term tenure is lucrative in the long term.
There is an interest rate that would be payable on application of 7.5 per cent. We believe that the interest rate is competitive, but, not the best around.