At a time, when Indian equities have roiled to see sharp correction over quite some time now, another fixed income option is open for investors to consider. This time it is NCD issue by Shriram Commercial Vehicle finance (SCVF) that opens its second tranche of secured NCDs between October 15 and 29. But here there is another catch, as recent fall out of IL&FS and other NBFCs may hinder one to take a call on this instrument assertively. So, here are discussed some fine points suggesting whether or not you should bet on the new NCD issue by SCVF:
Issue details: Investors looking at steady income source can bet on Rs. 300 crore NCD issue by SCVF available across maturities. The company has an option to retain oversubscription to a maximum of Rs.1,350 crores. The instrument offers a lucrative return of up to 9.7% per annum. The face value of the bond is Rs. 1000. Minimum investment in SCVF NCD is pegged at Rs. 10,000 and beyond this investor can in invest in multiples of 1 bond.
These NCDs are available in seven options with three maturities of 3 years, 5 years and 10 years. Of the different options, investors can choose to get interest on a monthly basis, annual basis or on a cumulative basis.
Senior citizens are eligible to avail an extra interest rate of 0.25%.
The NCD issue will be listed on the Indian exchanges i.e. both the NSE and BSE, hence highly liquid.
NCDs have been assigned CRISIL's AA+/Stable by Crisil Ratings whereas India Ratings has accorded it AA+ Outlook b IND Ratings.
Axis Bank, AK Capital Services, Edelweiss Financial Services, JM Financial Services, and Trust Investment Advisors are the lead managers of the issue.
Company details: The company is a leading asset financing NBFC that provides finance to first-time buyers as well as small road transport operators for pre-owned commercial vehicles. Also, they extend loans for purchasing new commercial vehicles. Other areas of its operations include financing for passenger commercial vehicles, multi-utility vehicles, three wheelers, tractors, ancillary equipment and components, tyres, engine replacements and working capital for SRTOs and FTBs.
|Interest payment frequency||Monthly||Monthly||Annual||Annual||Annual||Cumulative||Cumulative|
|Tenure||5 years||10 years||3 years||5 years||10 years||3 years||5 years|
|Effective yield p.a||9.50%||9.70%||9.39%||9.49%||9.69%||9.40%||9.50%|
How to apply for SCVF NCD?
For the second tranche of SCVF NCDs, applicants can submit the form between 10am to 5 pm or as prescribed by the exchanges during the issue period. It is advised to complete the submission process one day prior to the issue closing date before 3 pm. It is to be noted that the issue can be subscribed to only via the demat route.
Allotments: For retail investors and HNIs, the portion of NCD issue reserved is 40% each. While for others including QIPs and corporate investors, the reserved portion amounts to 10% each, respectively.
Allotments of the issue will be on first come, first serve basis.
Taxation of NCDs : Investors applying NCD issue via demat account will not attract TDS deduction. But on interest received on NCDs, you will be taxed as per your tax slab. This means whether or not NCD issuing company deducts TDS, you need to necessarily report such interest income while filing your income tax return and pay required tax on it.
Should you invest in SCVF NCD post IL&FS and other NBFCs fall-out?
After liquidity problem has hit infrastructure financing major IL&FS, the problem can recur with any of the other NBFC companies. Similar to rating downgrades seen in the case of IL&FS, you never can be sure when a similar scenario can befall other companies. Current credit rating for the issue by CRISIL and India Rating also hold good for now only. So, before taking a bet on these high risk instruments you definitely need to check your risk profile.
At the same, in the rising interest rate scenario, when the RBI in its recent monetary policy has rubbed off any instances of interest rate cuts in near future, one will likely see interest rates trend higher for other safe investments such as bank deposits.