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AAA 8.2% India Grid Trust NCD Opens: Should You Invest?
India Grid Trust non-convertible debentures opened for public subscription on april 28, 2021. Here we tell you all about the investment instrument:
1. Issue details:
Through the issue the company aims to gather Rs. 1000 crore initially and will close on May 5.
2. Eligibility:
The issue can be subscribed by 4 different category of investors including financial institutions, companies, high net worth individuals and retail investors.
3. Rating:
The issue has been rated AAA with a stable outlook by Crisil Ltd and India Ratings, which is the highest rating for an investment instrument. Here another factor that favours the company are its sponsors, KKR and Sterlite Power.
"Yes, it is an AAA-rated issue, but in the past as well, such highly rated firms have created issues for investors. Since it is in the power sector, the company might come across tough times. Investors need to adopt a cautious stance," said Harshad Chetanwala, a Sebi-registered investment adviser and co-founder of MyWealthGrowth.
4. Returns:
The return from the NCDs shall be a minimum of 6.75% and maximum 8.2 percent.
| Series | Frequency | Tenure | Coupon rate |
|---|---|---|---|
| I | Annual | 3 years | 6.75% |
| II | Annual | 5 years | 7.6% |
| III | Annual | 7 years | 7.89% |
| IV | Quarterly | 7 years | 7.91% |
| V | Annual | 10 years | 8.2% |
| VI | Quarterly | 10 years | 8.21% |
5. Conclusion:
The NCDs in the current regime if the investor's risk appetite allows should be invested in for a short to medium term as there can be a likely rate hike in the future course. Also, to avoid any credit risk kind of situation, investors need to continuosly monitor the company's financial standing as accordingly there may be a rating change.
Also, there is tax implication on interest earnings on NCD which shall be charged as per the taxpayers' slab rate.
"NCDs are fully taxable. On a five-year basis, 7.60% return is just less than a percentage point higher than what you get in a post office fixed deposit," said Agarwal. "In my opinion, dynamic debt funds are a better option, as in NCDs there is a default as well as concentration risk. IndiGrid has done well and has good promoters, but from the investors' point of view, it doesn't make sense as returns are fully taxable, and the capital risk is there", suggests Mrin Agarwal, founder, Finsafe India Pvt. Ltd, doesn't recommend NCDs to investors.
At other instances as no other top rated company will offer such high interest rate, experts recommend locking 10% of the fixed income portfolio into Indigrid Trust NCD
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