10% Muthoot Finance NCD – Feb’19 – 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 10.00% interest rate. The issue would open on February 14, 2019.

Muthoot Finance NCD – Significant Points:

• Offer Period: February 14 to March 14, 2019
• Annual Interest Rates for Retail Investors: 9.25% to 10.00% 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. 100 Crores with an option to Retain Over-subscription Up to Rs 650 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 9 options of investment in Muthoot Finance NCD.

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. AA Credit rating means very less likely hood of credit default
2. The NCD is secured, which means the above debt is backed by assets of the company
3. Largest Gold Loan player in India
4. The interest rates are 2% higher than your regular Bank FDs
5. No TDS if invested in Demat Form

Why you should not invest?

1. There have been issues with some well rated companies like DHFL,
   IL&FS where rating agencies suddenly downgrade the rating. This risk always existed but it has come to forefront in last few months
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 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.
4. 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.

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.

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