10% JM Financial NCD Opens: Should You Invest?

JM Financial Non-convertible debenture (NCD) issue with pre-tax yield of up to 10% per annum is highly appealing given the timing when the inflation has scaled to 6-year high at 7.59% and interest rate in the economy is falling and other fixed income options including bank deposits are nowhere near to such high returns.

10% JM Financial NCD Opens: Should You Invest?

Notably even as the RBI in its last monetary policy of the fiscal year 2019-20 announced on February 6 maintained status quo, it took to some of the measures such as CRR waiver in case of incremental loans to some of the segments such as auto, MSMEs and housing. Also, it provided a much needed impetus to the real estate sector by not downgrading (or tagging them with NPA status) commercial real estate loans if they have been delayed for reasons beyond the control of promoters. These are to lower the rates implicitly.

So, whether or not bank FD rates fall further in line with implicit reduction of rates, is yet to be seen. Worth noting that just a day after MPC statement, SBI slashed FD rates wherein a 1-10 year FD at SBI will now give 6% interest as against 6.1% earlier. But if you are comfortable with credit risk associated with these fixed-income options and yearn for higher returns that can indeed beat current high inflation rate on post-tax basis you surely can bank upon JM Financial NCD February 2020 issue.

Here are given the finer points of the issue that will help you decide on the investment option :

1. Issue details: The NCD issue for public subscription opened on February 13, 2019 and is slated to close on March 9, 2020, with an option for both extension or closure. Through the issue, the company aims to gather a total of Rs. 300 crore, wherein base size would be Rs. 100 crore with an option of over-subscription upto Rs. 200 crore, i.e. within the Rs. 2000 crore shelf limit.

"JM Financial Products has strengthened its position across business verticals with a diversified product mix. The Company has a debt / equity of 2.4x and has maintained strong liquidity buffers. We will continue to focus on risk adjusted profitable growth. This public issuance shall help us to further diversify our borrowing and investor mix," said Vishal Kampani, Managing Director, JM Financial Products Limited, (also MD, JM Financial Group).

The Tranche III issue of JM Financial comprises secured, rated as well as listed redeemable Non-Convertible Debentures ("Secured NCDs").

Face value of NCD is Rs. 1000 for every NCD
AK Capital Services, JM Financials and Trust Investment Advisors are the lead managers for this issue.

2. About the company: JM Financial Products Limited is a subsidiary of JM Financial Limited and a Non-Banking Finance Company (NBFC),

3. Rating:[ICRA] AA (Stable) by ICRA Limited and CRISIL AA/Stable by CRISIL Limited- ascertain high degree of safety in the instrument with respect to timely servicing of financial obligations

4. Interest rate:

Option	Tenure( in months)	Frequency of interest payment	Coupon rate	Effective Yield
I	24	Annual	9.5%	9.5%
II	24	Cumulative	NA	9.5%
III	40	Annual	9.7%	9.73%
IV	40	Cumulative	NA	9.7%
V	40	Monthly	9.29%	9.7%
VI	60	Annual	9.9%	9.9%
VII	60	Cumulative	NA	9.9%
VIII	60	Monthly	9.48%	9.9%
IX	120	Annual	10%	9.99%
X	120	Monthly	9.57%	10%

5. Conclusion: So if you have a long term horizon of say 5 years or so, you can get pre-tax yield of close to 10% by lapping up this NCD issue. But, it makes sense to invest for a shorter term in these instruments as one can never be sure in what directions interest rates might head up to in the future timeframe.

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