Now that the earnings on fixed income investment instruments across the market including small saving schemes and fixed deposit are treading southwards by few points, in the long run these small changes would mean considerable erosion. So, NCDs with better pay out in terms of real return and post-tax return can be a better option.
NCDs or non-convertible debentures are issued by companies to raise funds and they bear fixed return as coupon rate which is paid out to their investors. So, amid lower rates on other fixed-income instruments, NCDs can be a good choice for those willing to invest in fixed-income for a considerable long span.
Details of the NCD Issue
The NBFC company opened its NCD issue for public subscription on July 10. The issue aims to raise a total of Rs. 2000 crores and shall close on July 28. Though the initial issue size of the NCD offer stands at Rs. 250 crore, the company can retain an over-subscription to the maximum of Rs. 1750 crore. The face value of the debenture is Rs. 1000. The bonds to be issued only in demat form can be subscribed for a minimum of Rs. 10000.
Objective and company financials
The company primarily focuses on semi-urban and rural arrea and has total assets under management of Rs. 54,000 crore as on March 31, 2017. The funds moppped up from the issue shall be used for onward lending, refinancing existing bonds.
Fixed-return or Annual Coupon on Mahindra and Mahindra NCD
Depending on the term of the bond, the NCD shall fetch annual coupon income for retail investors. So, for 7-year, 10 -year and 15-year subscription, custoomer shall be able to get 7.85%, 8% and 8.05% annual coupon which shall be payable on an annual basis.
The NCD issue by Mahindra and Mahindra has been rated AAA by India Ratings as well as Brickwork which signifies highest safety in respeect of timely servicing of interest and principal payments and no credit or lowest possible credit risk.
The first concern with the NCD issue of Mahindra and Mahindra is that these are unsecured in nature i.e in case of any financial crisis in the company, subscribers may face difficulty in getting their due principal and interest amount. To compensate the disadvantage, these NCDs bear higher returns. Also, it is advised to remain invested in these fixed-income instruments until maturity to get away with any re-investment interest rate risk. So, with high chances of default, theses NCDs are also liquid when listed on the exchanges.
Also, unlike other fixed-income investment options such as bank FDs, companies do not deduct any TDS amount on the interest earned on these NCDs on a yearly basis. In fact any security that gets listed on the exchange, does not comes under the TDS ambit, so this is another advantage that retail investors can capitalise on.