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8.65% L&T Finance NCD Opens: Should You Invest?
If you diversify your portfolio and invest in fixed income instruments including NCDs, this NCD offer from L&T Finance may interest you. As it is interest rates are going down and after the recent rate pause by the RBI in its December bi-monthly monetary policy meet, RBI is unlikely to hold interest rates steady keeping rising inflation in mind. So, here is a low down on the available investment option from L&T Finance.
Details of the issue: L&T Finance secured redeemable NCD issue opens from December 16, 2019 until December 30, 2019, with an option of extension or early closure, in a case if the issue gets fully subscribed before December 30.
The issue comes in six series with different tenures and interest payment frequency.
Investors have the option to choose between 36 months, 60 months and 84 months tenure. Further, interest is provided either on a monthly, annual or on a cumulative basis on maturity. These NCDs provide early liquidity or redemption as they are traded on the Indian bourses. Minimum application amount will be Rs. 10000 for 10 NCDs across all series. Face value or issue price of NCD is Rs. 1000 and in multiples of Rs. 1000 thereafter.
Interest rate: Retail investors can earn coupon rate in the range of 8.45-8.65% per annum from the instrument. Here are further details given in the table:
| Series | I | II | III | IV | V | VI |
|---|---|---|---|---|---|---|
| Interest payment frequency | Annual | NA | Monthly | Annual | Monthly | Annual |
| Tenure | 36 months | 36 months | 36 months | 60 months | 60 months | 84 months |
| Coupon % for retail investors | 8.45% | NA | 8.15% | 8.60% | 8.29% | 8.65% |
Interest on a cumulative basis is offered only in case of NCDs with 36 months term and it offers a yield of 8.45% per annum.
Rating of the NCD issue: L&T Finance NCD issue has been rated CRISIL AAA (stable), CARE AAA / Stable and IND AAA / Stable. All of these ratings infer high degree of safety with respect to servicing of payment obligations. These instruments indeed have the lowest credit risk.
Conclusion: Herein again as with other investment options, your long term financial goal, risk profile and investment horizon should be a deciding factor on whether or not you should park your funds in this NCD issue. Furthermore, even though the rating of the instrument indicates high safety it changes over time so reflect on this point too. Also, as interest earnings made on NCDs are fully taxable as per the individual's slab rate in the year of receipt, you need to evaluate post-tax returns before betting on the instrument. But with an inherent element of risk, this NCD option can reward you with higher returns in comparison to bank FDs that currently offer return in the range of 6.25% - 6.7% for 1-10 year term.
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