Double Your Money in 6 Years with Muthoot Finance NCDs – November 2013 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Muthoot Finance has again come out with a public issue of its secured and unsecured non-convertible debentures (NCDs) and it has been launched from today. This would be the second issue from Muthoot Finance this financial year after it raised Rs. 300 crore in September from its first issue.

The issue will remain open for two weeks to get closed on December 2nd i.e. first Monday of December. The company may extend the closing date of the issue or preclose it, depending on the response for the issue.

Most of the features of the current issue, including its coupon rates for the retail investors, are same as they were in the first issue. Let us first have a look at all of its features.

Size of the issue – The company plans to raise Rs. 300 crore from this issue as well, including the green shoe option of Rs. 150 crore.

Coupon Rates – Like Muthoot offered in its earlier issue as well, the company promises to double your investment amount in 6 years’ time i.e. 72 months with an effective yield of 12.25% per annum. But, NCDs issued under this option are ‘Unsecured’ in nature.

Apart from this option, it is offering coupon rates ranging from 11% to 12.25% with different maturity periods and different interest payment options as you can very well check from the table below.

Coupon Rates for Institutional Investors – This is one significant change Muthoot has made as compared to its first issue. Muthoot has decided to offer a lower rate of interest to the institutional investors and the difference is of 75 basis points (or 0.75%) across all the options, except option VII. The difference is of 0.25% only with option VII.

Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and as always, each category will have certain percentage fixed for the allotment:

Category I – Institutional Investors – 15% of the issue is reserved

Category II – Non-Institutional Investors & Corporates – 35% of the issue is reserved

Category III – Retail Individual Investors including HUFs – 50% of the issue is reserved

NCDs will be allotted on a first come first served basis in all these categories.

NRI Investment – Like its first issue, non-resident Indians (NRIs) are not allowed to invest in this issue as well.

Ratings & Nature of NCDs – There are two rating agencies involved in this issue – CRISIL and ICRA and both have assigned ‘AA-/Negative’ rating to this issue. All these NCDs are ‘Secured’ in nature, except NCDs issued under option XI which offer to double your money.

Listing, Demat & TDS – Muthoot has proposed to list its NCDs only on the Bombay Stock Exchange (BSE). Investors will again have the option to apply these NCDs in physical form as well as demat form under options I to VI. Applicants cannot apply for allotment of these NCDs in physical form under options VII to XI i.e. these NCDs will be allotted only in dematerialised form under options VII to XI.

Again, the interest earned will be taxable as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000. But, NCDs taken in the demat form will not attract any TDS on the interest income.

Minimum Investment – Minimum investment in this issue as well has been fixed as Rs. 10,000 i.e. 10 bonds of face value Rs. 1,000.

Muthoot NCDs, issued in the first issue this year, have allotment date of September 25th i.e. they were issued around two months back. As you can check from the table above, most of these NCDs are still trading below their face value.

Also, liquidity is very poor with these NCDs, especially under unpopular options like cumulative interest & annual interest options and also with longer duration options of 60 months & more.

Interest rates have also risen since then. So, if I need to invest my money in Muthoot NCDs, I would go for already listed NCDs rather than buying them from the company in this issue.

Also, gold financing sector overall is not doing that great, but Muthoot is a key player in this sector. Investors need to factor in all these variables before applying for these NCDs.

Application Form of Muthoot NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in Muthoot NCDs, you can contact me at +919811797407