Muthoot Finance, the dominant player in Gold Loan Business has come out with Rs 500 crore public issue of non-convertible debentures (NCD) offering up to 11.75% interest rate.
Muthoot Finance NCD – Significant Points:
- Offer Period: May 26 – June 26, 2014
- Annual Interest Rates for Retail Investors: 10.50% to 11.75% depending on tenure
- There is also an option where the money doubles in 6 Years 3 Months (11.70% 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: ‘ICRA AA-/Stable’ by ICRA
- Allotment: First Come First Serve
- Listing: Bonds would be listed on BSE and will entail capital gains tax on exit through secondary market
- Loan against NCDs: The Company, at its sole discretion, subject to applicable statutory and/or regulatory requirements, may consider granting of a loan facility to the holders of NCDs against the security of such NCDs
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 6 Years 3 Months is unsecured.
Muthoot Finance NCD – Who can Apply?
This issue is open to all Indian residents, HUFs and Institutions.
- Category I – Institutional Investors – 5% of the issue is reserved
- Category II – Non-Institutional Investors, Corporates – 5% of the issue is reserved
- Category III – Retail Individual Investors including HUFs – 90% of the issue is reserved
However NRIs cannot apply for this NCD.
Why you should invest?
- The financials of the company is healthy
- The NCD is secured, which means the above debt is backed by assets of the company
- The interest rates are better than your regular FDs
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 are other competing NCDs with similar interest rates
How to Apply?
If you have Demat account apply through that. 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 have Demat Account, 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 X1 (Doubling Money) is riskier than other options as that is unsecure. You should keep away from that option. The difference of 0.2% interest does not justify the risk
- 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