Shriram Transport Finance NCD: Issue Review, Analysis & Details of Secured Non-Convertible Debentures

Details about Shriram Transport Finance NCD Secured Non-Convertible Debentures Issue July - August 2012
It was in December 2011 we saw the Muthoot Finance NCD in the market.
Now, the same Shriram Transport Finance company has come out with its NCD issue or Non-Convertible Debentures issue which is currently open.
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). So when you invest into any NCD of any company, you give it a loan. The amount of Coupon rate that you are promised by the company acts as a interest which you expect to recieve for your loan.
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 may not be 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.

Shriram Transport Finance NCD: Review, Analysis and Calculations

What are the NCD dates for Shriram Transport Finance NCD?
The Shriram Transport Finance NCD is open from July 26, 2012 and closes on August 10, 2012.

What is the issue size of Shriram Transport Finance NCD?
Shriram Transport Finance NCD issue is expecting to raise around 300 Crore Rs. through the Shriram Transport Finance NCD issue. This can extend further in case of an over-subscription to another Rs. 300 Crore.

What is the minimum investment amount required for investing in Shriram Transport Finance NCD?
Each debenture is having a face value of Rs. 1000 and minimum 10 debentures can be applied for. Hence, the minimum application amount comes to Rs. 10,000.

What are the various investment options available in Shriram Transport Finance NCD?
There are 4 options available for investing in Shriram Transport Finance NCD - coming with 4 different maturity periods of 36 months to 60 months.
There are 4 series of bonds:
1) Series I with 3 years tenor and annual coupon frequency
2) Series II with 5 years tenor and annual coupon frequency
3) Series III with 3 years tenor and redeeming at a premium
4) Series IV with 5 years tenor and redeeming at a premium

What is the additional rate of interest for Senior citizens?
No - there is no additional rates offered to Senior citizens

What is the effective interest rates offered by Shriram Transport Finance NCD?
Depending upon the various maturity period listed above, the effective yield on the Shriram Transport Finance NCDs will vary from a low of 10.25% to 10.5% per annum. Please note that these are yields. Coupon rates vary from 11.15% to 11.40%

How will the capital collected through Shriram Transport Finance NCD will be used by the company?
The money or capital collected through the Shriram Transport Finance NCD will be used for further business expansion and enhance lending capacity.

What are the ratings assigned to Shriram Transport Finance NCD?
Ratings are from CRISIL as 'AA/Stable' and 'CARE AA+' by CARE to the Shriram Transport 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 Shriram Transport Finance NCD be listed?
The Shriram Transport Finance NCD will be listed on the BSE as well as NSE.

Will there be any tax benefit available in Shriram Transport Finance NCD?
No. There will be no tax benefit available in Shriram Transport Finance NCD.
Instead, all the income that you will earn as interest from the Shriram Transport 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 Shriram Transport Finance NCD based upon the high double digit interest it is offering.

ICICI Children Plans: Review, Analysis & Details

Details, Reviews and investment options about the various ICICI Pru Life Child Plans or ICICI Children Plans

Continuing further from our previous article ICICI Child Plans - Savings Based Plans
The next child plan on the list is from ICICI Pru life and is called ICICI Pru Smart Kid - Regular Premium. This is one of the plans for which ad campaigns are being run actively.

One can start investing in this plan with as little as 700 Rs. per month or Rs. 8400 per annum. This offers a mix of insurance as well as returns and claims to provide the following benefits:
- Guaranteed Protection (kind of insurance): Lump sum payment of Sum Assured plus payment of future premiums by the Company in the unfortunate event of death of the parent (Life Assured)
- Development Allowance : Under this benefit, a specified amount is paid to the child every year, in the unfortunate event of death of the parent, if Income Benefit Rider is opted for
- Facility to provide money for key educational expense of the child
- Protection against Accident and Disability : Additional protection against accident and disability is provided with the help of a rider at a marginal extra cost
- Tax Benefits : On premiums paid and benefits received, as per prevailing tax laws
However, please note that all these benefits come at a cost. Say development benefit will be given only if the benefit rider is opted for. Accident Protection can be claimed only if you take a rider which comes at an extra cost. So overall, the more benefits you expect, the more you pay.

Review of ICICI Children Plans

Apart from the insurance part, it claims to offer something called as
Guaranteed educational benefit with two options to choose from.
Option 1 is that you take payouts at regular times - say first payout 15 years of age, second at 17 years, third at 20 years and last at 22 years. The respective amounts will be 20%, 25%, 25% and 30% of the sum assured.
Option 2 is receive 5 payments in last 5 years of the policy with 20% amount of sum assured each year.

The problem is that everything is tied to Sum Assured. So obviously as an investor, you will wish to have higher sum assured amount, but that will mean higher investment amounts.
Even if you are looking at taking other add-ons like the Income benefit rider or the development allowance, then they are also dependent of Sum Assured.
They come at further extra cost. So overall, you end up paying more.

There are some payouts mentioned about Guaranteed Additions and Vested Bonus, but no clear details are available other than Guaranteed Additions (3.5% on Sum
Assured for the first 4 years); & Vested Bonus based on the experience of the Company. Obviously this is at the discretion of the company.
On their website, I was unable to locate the details about where and how this money will be invested by the insurance company under the ICICI Pru Smart Kid - Regular Premium. If readers are aware of that please post it in the comments section and this article will be updated after due verification.

The next similar plan offered by the same ICICI Pru life insurance company is in the name of ICICI Pru SmartKid Premier and this is actually a ULIP i.e. Unit Linked Insurance Plan.
So here, you opt for a tenure of investment 5, 7 or 10 years. The insurance company will invest your money in one of the several funds of ICICI and your returns will actually depend upon how the underlying funds perform.

Since this is a ULIP, there will be charges deducted - allocation charge, policy admin charge and fund management charge, etc. Each fund will have its own charges and since this is a ULIP, there might be other charges as well.
On their website, there is only illustration of how an investment of say Rs. 18,000 will grow at 6% yield or 8% yield. I was unable to find clear details about what all charges will be applicable. True that it will depend upon the funds being selected by the insurance company, but as an investor I would like to know the charges upfront.
So in essence, this being a ULIP, you money will get invested in a variety of funds depending upon your choice of personalized portfolio strategy from as described as :
- Fixed Portfolio Strategy: Option to allocate your savings in the funds of your choice
- LifeCycle based Portfolio Strategy: A personalized portfolio strategy to create an ideal balance between equity and debt, based on your age
- Trigger Portfolio Strategy: A unique portfolio strategy to protect gains made in equity markets from any future equity market volatility while maintaining a pre-defined asset allocation.
The usual claims of insurance even after the demise of parents or policy-purchaser, loyalty additions, maturity benefits, etc. etc.

Overall, you give your money to the fund managers, charges will get deducted as per the selected choice of funds and other needs, returns will vary, insurance is assured in terms of payment of premiums, but then the final amount is not assured. It can go either way.

So ideally, if you are looking to buy a policy for certainty for your kids future, you need to take a call about which one to buy.
Are you OK to take a deep dive into the ICICI Pru SmartKid Premier where returns will vary depending upon the fund performance and charge deductions, OR are you fine with ICICI Pru Smart Kid - Regular Premium where everything is dependent on Sum Assured OR does the bank savings based "Child Education Plan" appeal to you more as it is safe?

The problem with all these fancy child plans is that they don't really explain where your money is going. You as an investor need to decide how much do you want. And the higher returns you expect, the higher amount of investment you make. It sounds good to mix insurance with investment, but that is not a good strategy. These policies and plans base everything on Sum Assured, meaning higher investments to be made upfront. With ULIP coming in picture, the charges take away significant portion of profits, with a lot of conditions and lock in periods. You also cannot withdraw your money early, if you need or else pay heavy penalty.

Overall, if you are OK to take risk in shares or equities, then SIP in an index based ETF is considered a safe bet over a long period of 10+ years. If you are not of equities type, then you can look at investing regularly in bonds and fixed deposits offered by numerous banks. Now with online banking, you can get Fixed deposits created in few clicks.

ICICI Child Plans: Review, Analysis & Details

Details, Reviews and investment options about the various ICICI Child Plans or ICICI Children Plans
Now a days, there are repetitive ad campaigns run by ICICI for their Child Plans - the punch line being "Hum to hain hi nahin". Basically, this punch line suggests the anyone (parents, grandparents or others) can purchase ICICI child plans for any kids at home and even in case of demise of the adult who had purchased the plan, the plan will continue as the insurance company will continue to pay the premiums after the demise of the purchaser. So in essence, the message that is being attempted to be conveyed is "Whether you are there or not, your child (and his plan) is covered".
What's the reality of this claim, how realistic is it, what are the practical benefits of such child plans and whether they fulfill the needs as desired, what are the various child plans available from ICICI and what are the differences between them? Let's try to find answers to such questions in this article.

There are several plans available from ICICI under the banner of "Child plans". When I searched on Google with "ICICI Child Plans", I could find three on the official sites (one of ICICI Bank and other two on ICICI Prudential Life site). The ad campaign mentioned above is for the two from ICICI Prudential Life, but since ICICI Bank is also offering one such plan, I'll cover that as well.

The first plan that is listed is from ICICI Bank and is called the "Child Education Plan".
Investors should clearly note that this plan is offered by a BANK and NOT by an Insurance company or Mutual Fund house. Hence, it does NOT offer any kind of insurance to either the child or the parent. It only provides a structured way to invest your money in standard bank accounts (fixed deposits) based upon the tenure of investment you select.
Basically, the structure is into two phases - Investment Phase and Benefit Phase.
In short, during investment phase, you keep making deposits into this plan each month and bank will create Fixed deposits/ Recurring Deposits from these amounts till the end of investment phase.
After that, the benefit phase will start where you will be able to withdraw money either quarterly or annually to meet the expenses for your children education or others.

So, it's a straightforward and simple plan, you keep making regular savings during investment phase and then start withdrawing the money quarterly or annually during benefit phase.
The problem - you cannot make any partial withdrawal mid-way. However, bank is willing to offer loan up to 90% of the principal amount invested till that date during investment phase. During Benefit phase, loan of 75% of remaining amount will be available. But beware - loan is loan and it comes at a cost.
No insurance is available to either the child or parents. No exposure to stocks, simple structured way to save money in the bank.

Review of ICICI Child Plans

What are the other alternatives to this Bank based child plan? ICICI is not known to be the best bank for offering high interest rates on Fixed Deposits. Other banks usually score better, especially for some odd tenures like 1 year 15 days and so on.
A simple alternative is to create these FD's on your own as and when you desire. The only drawback is lack of discipline from investors which defeats the purpose. It is for such cases these bank saving plans help.

The next child plan on the list is from ICICI Pru life and is called ICICI Pru Smart Kid - Regular Premium. This is one of the plans for which ad campaigns are being run actively.

Head on to the next part to see details of this plan ICICI Children Plans: Review, Analysis & Details