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This NCD Option Can Generate Up To 8% Return For Investors
In low interest income scenario from traditional fixed income instruments, this new NCD (non-convertible debenture) offering from gold financing company Muthoot Finance may earn a better return for you. Here is a complete low down on the investment option that opens today:
Issue details: Muthoot Finance secured redeemable NCDs issue will open from October 27, 2020 until November 20, 2020. The offering is of a base size of Rs. 100 crore with an option to retain oversubscription up to Rs 1,900 crore, taking tranche I issue size to Rs. 2000 crore.
A. K. Capital Services Limited , JM Financial Limited, Equirus Capital Private Limited and Edelweiss Financial Services Limited are the Lead Managers to the NCD issue.
The issue comes in six options with different interest payment frequency and tenure. Investors have the option to choose between 38 and 60 months. 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 (NCD to be listed on BSE). Minimum application amount will be Rs. 10000 for 10 NCDs across all series.
Issue objective:
Minimum 75% of the amount raised from the issue will be put towards lending while a sum not exceeding 25% shall be used for general corporate purposes.
Interest rate: Investors can earn coupon rate in the range of 7.15 percent per annum to 8 percent per annum.
| Options | I | II | III | IV | V | VI | |
|---|---|---|---|---|---|---|---|
| Interest payment frequency | Monthly | Monthly | Annually | Annually | Cumulative | Cumulative | |
| Tenure (in months) | 38 | 60 | 38 | 60 | 38 | 60 | |
| Coupon rate (% p.a.) Category I, II | 7.15% | 7.5% | 7.4% | 7.75% | NA | NA | |
| Coupon Rate (% p.a.) Cat III, IV | 7.4% | 7.75% | 7.65% | 8% | NA | NA | |
| Effective Yield (% p.a.) Cat I, II | 7.15% | 7.5% | 7.4% | 7.75% | 7.4% | 7.75% | |
| Effective Yield (% p.a.) Cat III, IV | 7.4% | 7.75% | 7.65% | 8% | 7.65% | 8% |
Note Category I, II, III and IV investors are QIB or Qualified Institutional buyers, NII, HNIs and retail investors respectively.
Rating of the NCD issue: This series of Muthoot Finance NCD is rated CRISIL AA/Positive by CRISIL and [ICRA] AA (Stable) by ICRA. These ratings infer high degree of safety with respect to timely servicing of payment obligations.
Conclusion: As with different other investment avenues, 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 give a heed to this aspect also. Besides, interest earnings made on NCDs are fully taxable as per the individual's slab rate in the year of receipt. But with an inherent element of risk i.e. as the NCD carries comparatively lower rating, this NCD option can reward you with higher returns than most bank and corporate deposits that fetch between 5-6.5 percent per annum.
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