12.25% Muthoot Finance NCD of Nov-13-Should you invest?
After Sep-2013 NCD issue, Muthoot Finance has come with the fresh NCD issue in the form of secured and un-secured NCD’s. The interest rates are 12.25%. You can double your money in 6 years. Everything looks good. But what are the hidden factors. Should you invest in Muthoot Finance NCD or not?
About Muthoot Finance Limited
Muthoot Finance Limited is largest gold loan company in India in terms of loan portfolio and branch network. It has already issued 5 NCD’s in the past and this would be a 6th NCD issue.
Muthoot Finance NCD
Muthoot Finance is issuing secured and un-secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 300 Crores. It comes with 11 different options, which contains 400 days to 72 months tenure.
Muthoot Finance is issuing 11 options of NCD’s and 1 to 10 are in both secured and un- secured, however 11th option is unsecured.
a) Muthoot Finance Secured NCD’s
For secured NCD the assets are backed up for principal and interest. In case of anything happening to company, investors of NCD would still get their principal investment and interest.
b) Muthoot Finance Unsecured NCD’s
For un-secured NCD the assets are NOT backed up for principal and interest. In case of wind-up of company, investors of NCD would be paid after all settlements are done with secured NCD / debentures or any other secured loans. Comparing to Secured NCD’s, these un-secured NCD’s are riskier.
Features of Muthoot Finance NCD
- Issue start date: 18-Nov-2013
- Issue end date: 2-Dec-2013
- NCD’s are available in 11 different options.
- Interest payable monthly, annually and at maturity depending on the option of NCD.
- The face value of the NCD bond is Rs 1,000.
- Minimum investment is for 10 bonds means, you need to invest for a minimum of Rs 10,000. Beyond this you can invest in multiples of 1 bond.
- These NCD bonds would be listed on BSE. Hence these are liquid investments.
- Non-Resident Indians (NRI’s) cannot invest in these NCD’s.
- The issue size is Rs 300 Crores.
- NCD ratings are CRISIL AA-/Negative by CRISIL and ICRA AA-/Negative by ICRA.
- Download Muthoot Finance NCD Prospectus:
Below are the Interest rates details.
How is the company is doing in terms of Financials?
- Revenues of the company have grown from Rs 4,549 Crores (FY 2011-12) to Rs 5,387 Crores (FY 2012-13) indicating a growth of 18%.
- Profits increased from Rs 892.02 Crores (FY 2011-12) to Rs 1004.39 Crores (FY 2012-13) indicating a profit growth of 13%.
- Non Performing Assets (NPA) of the company are 0.56% (FY2011-12) Vs 1.99% (FY 2012-13).
Why to invest?
- Company is doing well in terms of revenues and profits.
- It offers secured NCD’s also where your money is safe. Means in case of anything happening to company, investors of NCD would still get the principal and interest. Hence it is safe to invest in such secured NCD’s.
- Attractive interest rates between 10.75% to 12.25% per annum
- You can double your money in 6 years.
Why not to invest?
- There are other good rated NCD’s which you can buy in the open market.
- The gold loan industry is slowing down. Gold prices have become volatile.
- Capital adequacy ratio as per RBI limit should be 15% and actual as on 31-Mar-2013 is 19.62% which is the outside RBI limit.
- Gold finance companies are riskier. Decline in gold prices (which happened 6 months back), can pose high risk to such business.
- Increase in NPA’s for the year ending Mar-2013 is a concern.
- Recent tax free bonds offered up to 8.92% tax free returns. For high tax bracket individuals these were good secured income.
How to apply?
Majority of the stock brokers who maintain demat accounts are offering the service. You can also directly apply through ICICI Direct or any other institutions indicated in application form, if you would like to go for physical form. However you need to have these NCD's in demat form to sell them.
Conclusion: Owning to several negative factors, personally I would not like to recommend such risky products. If you want to invest go for Secured NCD so that you can secure your investment. Otherwise, there are better products in the market to invest. One should consider these risk factors before applying the same.
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Suresh
12.25% Muthoot Finance NCD of Nov-13
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Muthoot NCD yields attractive I give 1 % commission on total amount 91-9462659179
Hi Suresh,
Is it advisable to invest in the NCDs of Mannapuram and Muthoot which are currently on?
Hi Tusar, Investment in company NCD’s are riskly. However if they are Secured NCD’s, you can invest. These are backed-up with securities. Stay away from unsecured NCD’s.
Hello Mr.K.P.Suresh,
In the recent NCD issues, if we select the ‘monthly’-interest payment option, I find that in some issues, the monthly interest is computed as follows: (i.e) annual interest / 12. But in other cases, it is calculated as: annual interest / 365 x (no.of days in a particular month). Is this correct? Kindly clarify. Thanks. E-mail: bcskal@rediffmail.com.
Hi Chandrasekhar. I feel it is yearly interest divided by 12. However it may be immaterial if some companies followingh your second method. By the end of the year, you would get interest for 365 days 🙂
Dear Suresh,
Is it advisable to invest in a company Fixed Deposit like Network 18?
Tusar, When this FD scheme has come ?
It is currently on….!!
Dear Suresh,
Just wanted to know – had there been a choice between Shriram Transport and Muthoot Finance (now closed), where would you invest? What are the forthcoming NCDs in this FY 2013-14?
Tusar, Considering rating and risk factors, I would have preferred Shriram Transport instead of Muthoot. Keep reading our blog, we would post upfront about any upcoming NCD’s.
Why did my comment get delete ???
Akshay, I do not delete anything even thought I am providing free service. You have posted on 20-Nov-13 and I would clarify them within 48 hours. Few minutes back, I clarified. Be patient.
Yeah my comment went for moderation and was not their at the bottom so i thought it got deleted.Following your blog daily now.I am not investing in this and waiting for the shriram city one to come out.Should be here before december start.
Thanks, I don’t want my readers to mis-understand me as sometimes if I don’t know the answer, I’ll tell them that I don’t know.
Suresh,
Do we need to have demat account for buying NCDs??
Shiv, For certain options indicated here you need to have demat account. You cannot apply in physical form. It would be better to have one, so that these are available like any other stock and you can sell them in case you have any emergency fund. These are tradeable on BSE like any other stock.
can u please tell me which of these ncd are secured and which of these are non secured and where to find ncds online any website ? pleas help thanks i am student and want to invest 10000 and need atlst 12% returns
Hi Vivek, Options I to X are available in secured and unsecured. Option XI is availabel only in Unsecured. When you apply for I to IX options, there would be check mark for you to opt for unsecured also. Means if secured ones are alloted, you might be agreeing that company can allot unsecured one to you. If you want only secured, just tick-mark secured. It may or may not get alloted to you.
I downloaded the form from their website and it shows different rates.I checked after your comment.For example the 400 days one has rates of 10.75% and 11% as per your category.
Akshay, There was some confusoin as I created coupon rate and yield. I have now removed yield and corrected this column.
Muthoot NCDs have a rating of AA -, which is why they are offering such high rates of interest. Isnt that below investment grade ?? What should be the minimum rating for an investment grade opportunity?
Annapurna, There is no such minimum grade. In Sep-13 Muthooth NCD’s were offering 12.5% interest, now they are offering 12.25%. The lower the grade the higher the interest rate is. Beyond that there are other factors also where such companies give high rates to attract money from investors.
Nicely researched article.
The rates you have mentioned in the table are wrong.And from option 7 to 11 in table you cant apply in physical form for some reason.
Akshay, I have re-verified and found the rates as correct. I would like to know which rate is incorrect so that I can verify and correct.
Helo Suresh
you have written that NCDs I to X are both secured & un-secured but what I find from the NCD prospectus given by you is that issues I to X are secured only.Plz clarify the doubt
Hi Priyajit, I had similar query when I was analysing, Pls read point no.A in first sheet which indicates that applicant need to specify secured or unsecured for I to X. For XI, you can opt only for unsecured option.
Suresh, are you not recommending Muthoot NCDs based only on the interest rates? Because if they are secured NCDs, what are the risks associated with them?
Would be great if you can suggest some NCDs to buy from the market.
A quick look at the available NCDs suggest SREI INFRASTRUCTURE (~15% YTM, & trading below Face), also some Muthoot & Religare NCDs in the 14% range. Would love to hear your thoughts.
Kiran, I just updated small comment that you can go for “Secured NCD”. But unsecured are high risk. Generally such companies which has low credit rating offers high interest rates to attract customers. I would do some analysis in coming weeks about high rated NCD which are listed and available at discounted price.
Thank you. Looking forward for that article.
Dear Suresh,
Will you inform about some other good rated NCDs in the open market and how can I purchase it from the market
Saju, If you have demat account like in ICICIDirect.com, you can click on NCD option and view all traded NCD’s their bond value and yield. You can select good rated funds from them. I would post some analysis in coming weeks about high rated NCD’s which are available at discounted price