IFCI NCDs Jan 2015: Should You Subscribe?

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Industrial Finance Corporation of India (IFCI) has come up with yet another NCD, close on the heels of the one launched in Oct 2014.

IFCI NCDs Jan 2015: Should You Subscribe?
This time, however, the only difference is that the interest rate has been dropped to a maximum of 9.5 per cent, as against 10 per cent earlier.

Details of the issue

IFCI intends to raise Rs 25 crores through the issue of the NCDs. The issue opens on Jan 1 and closes on Feb 4, 2015. CARE has rated the NCDs with A, which offers a stable outlook. The NCDS have a face value of Rs 1000 with a minimum subscription of 10 NCDs, which means you require a sum of Rs 10,000.

Interest rate and other details

For the 5 year tenure the interest rate offered by IFCI is 9.45 per cent, while the 10 year NCD comes with a coupon rate of a slightly higher 9.5 per cent. Interest will be paid every year and on six monthly basis.

Should you subscribe?

Interest rates in the economy are beginning to fall. While a few months back the NCDs offered by IFCI attracted an interest rate of 10 per cent they have now dropped to 9.5 per cent. Most of the banks have also cut interest rates on deposits. What this means is that as we go along interest rates are likely to drop in the next few months. It's almost impossible to find any reputed bank offering interest rate of 9.5 per cent currently on fixed deposits.

If you invest at 9.5 per cent interest you are locking in money for 5 and 10 years at 9.45 and 9.5 per cent. Therefore, should interest rates in the economy fall you have hedged against falling interest rates.

One of the most important things is that IFCI is a government owned institution making the NCDs very secure. One can opt for the NCDs keeping the 10 year option in mind.


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