9% Muthoot Finance NCD – April’18 – Should you Invest?

Muthoot Finance, the dominant player in Gold Loan Business has come out with public issue of non-convertible debentures (NCD) offering up to 9.00% interest rate. The issue would open on April 9 and would close on May 8, 2018.

Muthoot Finance NCD – Significant Points:

  • Offer Period: April 9 to May 8, 2018
  • Annual Interest Rates for Retail Investors: 8.00% 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: ‘AA (Stable)’ by ICRA and ‘AA/Stable’ by CRISIL
  • NCD Size: Rs. 500 Crores with an option to Retain Over-subscription Up to Rs 3,000 crore
  • 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

Muthoot Finance NCD – Investment Options:

There are 10 options of investment in Muthoot Finance NCD.

Muthoot Finance NCD – April 2018 – Investment options

Muthoot Finance NCD – April 2018 – Investment options

Muthoot Finance NCD – Who can Apply?

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

  1. Category I – Institutional Investors – 20% of the issue is reserved
  2. Category II – Non-Institutional Investors, Corporates – 20% of the issue is reserved
  3. Category III – High Networth Individuals (HNIs) – 30% of the issue is reserved
  4. Category IV – Retail Individual Investors – 30% of the issue is reserved

High Networth Individuals are Investors/HUFs applying for an amount aggregating to more than Rs 10 lakhs across all Series of NCDs

However NRIs cannot apply for this NCD.

Also Read: 25 Tax Free Incomes & Investments in India

Why you should invest?

  1. The NCD is secured, which means the above debt is backed by assets of the company
  2. Largest Gold Loan player in India
  3. The interest rates are 2% higher than your regular Bank FDs
  4. No TDS if invested in Demat Form

Why you should not invest?

  1. The interest rates trend is rising. In last two months SBI has raised its interest rate on fixed deposit by 0.75%. It seems like the interest rates would go up more in near future. Hence should not lock your investment for long term.
  2. The fortune of Gold Loan companies are dependent on Gold Prices. Any negative correction to Gold prices can be bad for company
  3. There has been consistent drop in profits of the company and increase in NPAs. If this continues, there might be issues in serving regular interests.
  4. 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.
  5. The present Tax Free Bonds are offering yields up to 6.5% in secondary market, which is better investment for People in highest tax bracket.

Also Read: 7.75% Government of India Savings Bonds – Should you Invest?

How to Apply?

You can apply online by 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 NCD issues using ASBA?

In case you don’t want to do it online, you can download the application form from company site or Financial Institutions and submit to collection centers.

Also note that only option I to VI is also available in Physical Form while option VII to X would only be available in Demat Form.

Recommendation:

  1. My recommendation is to invest some part of your Fixed Income investment in this NCD Issue
  2. The interest rates are likely to go up in near future, hence select less than 2/3 years tenure.
  3. You should always have diversified portfolio be it fixed deposit, NCD or equity investment
  4. 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.

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