It was not long time back when the Gold Loan company named Muthoot Finance had come out with its IPO Muthoot Finance IPO in April 2011.
Now, the same Muthoot Finance company has come out with its NCD issue or Non-Convertible Debentures issue which is currently open and claims to double the investors money in five and a half years.
Let's start with the basics first.
What is a NCD or Non-Convertible Debentures?
NCD or Non-Convertible Debentures can be termed as a kind of special category of loan, which cannot be converted to a stock (hence the name Non-Convertible).
NCD's usually offer a higher rate of return as compared to Bank Fixed Deposits as well as FMP or Fixed Maturity Plans (What is a FMP: Explained).
Important thing for investor to note here is that NCD are kind of unsecured bonds, which are not backed by any collateral. Hence, when you are investing in an NCD, it indicates that you are actually offering a kind of unsecured loan to the NCD company. Since it is unsecured, it offers higher rate of interest (more risk-more return). Also, since it is non-convertible, these NCD's cannot be converted to stocks or equity of the company.
Muthoot Finance NCD: Review, Analysis and Calculations
What are the NCD dates for Muthoot Finance NCD?The Muthoot Finance NCD is open from 22 Decemeber 2011 and will close on January 7, 2012.
What is the issue size of Muthoot Finance NCD?
Muthoot Finance NCD issue is expecting to raise around 600 Crore Rs. through the Muthoot Finance NCD issue. This includes an over-subscription of Rs. 300 Crore.
What is the minimum investment amount requried for investing in Muthoot Finance NCD?
Each debenture is having a face value of Rs. 1000 and minimum five debentures can be applied for. Hence, the minimum application amount comes to Rs. 5000.
What are the various investment options available in Muthoot Finance NCD?
There are 4 options available for investing in Muthoot Finance NCD - coming with 4 different maturity periods of 24 months, 36 months, 60 months and 66 months.
What is the effective interest rates offered by Muthoot Finance NCD?
Depending upon the various maturity period listed above, the effective yield on the Muthoot Finance NCDs will vary from a low of 13% to 13.45% per annum.
The 66 month or 5.5 year maturity period option claims to double the investors money in 5.5 years period.
How will the capital collected through Muthoot Finance NCD will be used by the company?
The money or capital collected through the Muthoot Finance NCD will be used for repaying existing loans as well as financing other business activities.
These activities will include investing as well as lending.
There are plans to increase the no. of branches which currently are at 97.
What are the ratings assigned to Muthoot Finance NCD?
Both CRISIL and ICRA have assigned AA-/ Stable ratings to the Muthoot Finance NCD issue.
As claimed on the company website, the ratings indicate stability regarding the financial obligations on part of the company.
Where will the Muthoot Finance NCD be listed?
The Muthoot Finance NCD will be listed on the Bombay Stock Exchange or BSE.
How can I directly apply to invest in Muthoot Finance NCD?
Interested investors can apply by downloading forms from the following site Muthoot Finance NCD Application Form
Will there be any tax benefit available in Muthoot Finance NCD?
No. There will be no tax benefit available in Muthoot Finance NCD.
Instead, all the income that you will earn as interest from the Muthoot Finance NCD will be taxable. Company will NOT deduct any TDS while paying the interest - it will be the responsibility of the investor to declare that income and pay taxes on it.
Hence, the investors should take into account the post tax effective returns calculation before jumping onto investing in these Muthoot Finance NCD based upon the high double digit interest it is offering.
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