Muthoot Fincorp Secured NCD – July 2014 – Should you Invest?

Muthoot Fincorp is Kerala based NBFC mainly involved in Gold Loan Business. This is different company from more famous Muthoot Finance.

It has come out with NCD (non-convertible debentures) issue of Rs 100 crore with an option to retain additional Rs 100 crore aggregating to Rs 200 crore.

Muthoot Fincorp NCD – Significant Points:

• Offer Period: July 3 – August 4, 2014
• Annual Interest Rates for Retail Investors: 10.75% to 12% 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: ‘CRISIL A /Negative’
• All NCD option are Secured
• Allotment: First Come First Serve
• Listing: Bonds would be listed on BSE and will entail capital gains tax on exit through secondary market
• NRIs cannot invest in the issue

Muthoot Fincorp NCD – Investment Options:

There are 10 options of investment:

Why you should invest?

1. The NCD is secured, which means the above debt is backed by assets of the company
2. The interest rates are better than your regular FDs/NCDs

Why you should not invest?

1. The Credit Rating is A/Negative, which means low credit risk but still I personally am not comfortable with this rating.
2. There are other competing NCDs offering 0.25% less interest rate but with better rating.
3. Muthoot Fincorp is in Gold Loan business. It might suffer a setback in terms of higher NPAs if Gold Prices come down.
4. Though NCDs are listed on stock exchange, the liquidity is very low. So it might be difficult to exit anytime you want. You might have to sell at discount to exit

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 X would only be available in Demat Form.

Conclusion:

1. My recommendation is to keep away from this issue. If you are really tempted by slightly higher interest rate i would advise to invest very small part of your portfolio in this NCD,
2. You might want to look for Shriram Transport NCD which is still open.
3. Its good idea to remain invested till maturity because liquidity on exchanges are low and hence you would get lower than market value

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