9% Mahindra Financial Services NCD – May’16 – Should you Invest?

Mahindra & Mahindra Financial Services Ltd, a leading rural non-banking financial company has come out with public issue of non-convertible debentures (NCD) offering up to 9% interest rate. The issue would open on May 25 and would close on June 10, 2016.

M&M Finance NCD – Significant Points:

• Offer Period: May 25 to June 10, 2016
• Annual Interest Rates for Retail Investors: 8.44% to 9.00% depending on tenure
• Price of each bond: Rs 1,000
• Minimum Investment: 10 Bonds (Rs 10,000)
• Max Investment Limit for Retail Investor: Rs 10 Lakhs
• Credit Rating: ‘IND AAA’ India Ratings and Research and ‘CARE AAA’ by CARE
• Allotment: First Come First Serve
• Listing: Bonds would be listed on BSE and will entail capital gains tax on exit through secondary market

Also Read – Know NCD – Investment Tips, TDS and Taxation

M&M Finance NCD – Investment Options:

There are 9 options of investment in Mahindra Finance NCD. The interest rates below are only for Retail/HNI investors (Category 3 & 4) as referred below.

The Company would allot Series VI to all valid applications, wherein the Applicants have not indicated their choice of the relevant series of NCDs.

M&M Finance NCD – Who can Apply?

This issue is open to all Indian residents, HUFs and Institutions.

1. Category I – QIB Portion – 20% of the issue is reserved
2. Category II – Corporate Portion – 20% of the issue is reserved
3. Category III – High Net Worth Individual Portion (More than Rs 5 Lakh investment) – 30% of the issue is reserved
4. Category IV – Retail Individual Investor Portion – 30% of the issue is reserved

However NRIs cannot apply for this NCD.

Why you should invest?

1. AAA Credit rating means very less likely hood of credit default
2. Part of well known conglomerate – Mahindra & Mahindra
3. The interest rates are better than your regular FDs

Why you should not invest?

1. The NCD is unsecured.
2. There are NCDs available in secondary market which have higher yields with similar rating. The problem is low liquidity and hence is difficult to buy in large numbers.
3. The present Tax Free Bonds are offering yields up to 7.0% in secondary market, which is better investment for People in highest tax bracket.

Also Read: Highest Interest Rate on Recurring Deposits

How to Apply?

If you have Demat account apply through ASBA facility provided by banks. It’s the easiest way to apply and also avoids a lot of hassle in terms of KYC and paper work.

Learn: How to apply for IPO/NCD issues using ASBA?

In case you don’t have Demat Account, you can download the application form from company site or Financial Institutions and submit to collection centers.

Recommendation:

1. My recommendation is to invest some part of your Fixed Income investment in this NCD Issue
2. You should always have diversified portfolio be it fixed deposit, NCD or equity investment
3. Its good idea to remain invested till maturity because liquidity on exchanges are low and hence you would get lower than market value

If you plan to invest in this issue, do it early as most NCD issues are over-subscribed before the end date.