Muthoot Finance, the dominant player in Gold Loan Business has come out with public issue of non-convertible debentures (NCD) offering up to 9.25% interest rate. The issue is already open and would close on February 17, 2017.
Muthoot Finance NCD – Significant Points:
- Offer Period: January 17 to February 17, 2017
- Annual Interest Rates for Retail Investors: 8.25% to 9.25% depending on tenure
- There is also an option where the money doubles in 8 Years (96 Months) (9.06% annual interest)
- 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
- Secured: ‘AA (Stable)’ by ICRA and ‘AA/Stable’ by CRISIL
- Unsecured: ‘AA (Stable)’ by ICRA and ‘AA/Stable’ by CRISIL
- NCD Size: Rs. 1,300 Crores for secured NCD and Rs 100 crore for Unsecured
- 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 11 options of investment in Muthoot Finance NCD.
The first 10 options are secured while the last option which doubles the money in 96 Months is unsecured.
Muthoot Finance NCD – Who can Apply?
This issue is open to all Indian residents, HUFs and Institutions.
- Category I – Institutional Investors – 20% of the issue is reserved
- Category II – Non-Institutional Investors, Corporates – 10% of the issue is reserved
- Category III – Retail Individual Investors including HUFs – 70% of the issue is reserved
However NRIs cannot apply for this NCD.
Why you should invest?
- The NCD is secured, which means the above debt is backed by assets of the company
- Largest Gold Loan player in India
- The interest rates are 2% higher than your regular Bank FDs
- No TDS if invested in Demat Form
Why you should not invest?
- The fortune of Gold Loan companies are dependent on Gold Prices. Any negative correction to Gold prices can be bad for company
- 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.
- 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.
- The present Tax Free Bonds are offering yields up to 6.2% in secondary market, which is better investment for People in highest tax bracket.
Also Read: Highest Interest Rate on Recurring Deposits
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.
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 XI would only be available in Demat Form.
- My recommendation is to invest some part of your Fixed Income investment in this NCD Issue
- The Option XI (Doubling Money) is riskier than other options as that is unsecure. You should keep away from that option.
- You should always have diversified portfolio be it fixed deposit, NCD or equity investment
- 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.