10% Muthoot Finance NCD May 2019 – Should you Avoid?

Muthoot Finance NCD May 2019 Review

Muthoot Finance NCD for May 2019, Tranche-II would open for subscription on 10th May, 2019. Muthoot Finance is a leading gold loan company in India. It is issuing secured NCD’s now. While banks are offering interest rates of 5.5% to 8%, high yield of these NCDs to 10.4% per annum would definitely attract investors. It is offering NCDs of 24 months, 38 months, 5 years and 10 year tenure. Should you invest in Muthoot Finance NCD of May 2019? What are the hidden factors an investor should consider before investing Muthoot Finance NCD of 2019? How does Muthoot Finance NCD compare with ECL Finance NCD, which is open now for subscription.

What are Non Convertible Debentures?

If you would like to know more about Non Convertible Debentures (NCDs), you can check this video.

About Muthoot Finance Limited

Muthoot Finance is largest gold loan company in India in terms of loan portfolio and branch network. It has already issued several NCD’s in the past in the form of secured and unsecured NCD’s.

Muthoot Finance NCD May 2019 Issue details

Muthoot Finance Limited is issuing secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 100 Crores with an option to retain another Rs 900 Crores over subscription totaling to Rs 1,000 Crores. It comes with 9 different options, which contains 24 months, 38 months, 5 years and 10 years tenure NCDs.

You may also like: Top 5 Midcap Mutual Funds trending now

What does Secured NCDs mean?

They are offering secured NCD’s now in May 2019. The principal amount of the NCDs to be issued in terms of the Draft Shelf Prospectus, this Shelf Prospectus and respective Tranche Prospectus together with all interest due on the NCDs in respect thereof shall be secured by way of an exclusive charge on identified receivables of Company and a pari passu charge in favour of the Debenture Trustee on an identified immovable property of Company, as may be decided mutually by Company and/or the Debenture Trustee at the time of filing of relevant Tranche Prospectus. The company will create appropriate security in favor of the Debenture Trustee for the NCD Holders on the assets adequately to ensure 100% asset cover for the NCDs.

Features of Muthoot Finance NCD of May 2019

Issue start date: 10-May-2019

Issue end date: 10-Jun-2019

NCD’s are available in 10 different options.

The interest of these NCDs is payable monthly, yearly and on maturity.

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.

CRISIL rated these NCDs as Crisil AA/stable and ICRA has rated them as ICRA AA (Stable). The rating of the NCDs indicates that instruments with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations.

Edelweiss Financial Services and AK Capital Services are the lead managers for this issue.

You can download the Tranche-1 Prospectus of Muthoot Finance NCD 2019 here.

Here are the interest rates on the May 2019 NCD’s of Muthoot Finance.

Muthoot Finance NCD May 2019 - Interest Rates correct one

What is the issue break-up?

Institutional Investors – 10%

Non Institutional Investors – 10%

High Net Worth Individuals – 30%

Retail Investors – 50%

How is the company doing in terms of Financials?

Here are the financials:

1) Its revenues for the quarter ended Dec-18 was at Rs 1,649 Crores compared to the previous year quarter ended Dec-17 of Rs 1,580.02 Crores.

2) Its profits for the quarter ended Dec-18 was at Rs 485.24 Crores compared to the previous year quarter ended Dec-17 of Rs 478.6 Crores. Means there is decline in the profits.

Why to invest in Muthoot Finance Ltd NCD?

1) Attractive interest rates where one can get up to 10% yield.

2) It is issuing secured NCDs which are safe to invest compared to other unsecured NCDs.

3) Good credit rating from CRISIL and ICRA Ratings as AA/Stable and AA (Stable) respectively.

Why not to invest in Muthoot Finance May 2019 NCD?

1) Gold finance companies are riskier. Decline in gold prices (which happened in the last 2-3 years), can pose high risk to such business.

2) Though Muthoot finance is offering secured NCDs, there could be a delay in the interest and repayment of principal at maturity.

3) You can refer all risk factors in the Final prospectus of the company.

How to apply Muthoot Finance NCD Issue of 2019?

You can apply these NCDs in demat form only. If you have demat account, you can login to your account and go to IPO/NFO/NCD section and apply for the same. The process of applying NCD would be through ABSA (Your amount would be blocked initially and upon allotment, your amount would be deducted and NCD unit allotment would be done, else your amount would be unblocked) You can reach out to any of the lead managers websites to know more details on how to apply them.

How Muthoot Finance May 2019 NCD interest is taxed?

Since you need to apply through the demat form only, the company would not deduct any TDS on the interest paid on these NCD’s. It is immaterial whether the company would deduct TDS or not, one has to declare the NCD interest as income in their income tax returns (ITR) and pay income tax based on the individual tax bracket.

When this Muthoot Finance NCD’s of 2019 would get listed on BSE?

These Muthoot Finance Limited NCDs of May, 2019 would get closed on 10th June, 2019. They would get listed after 6 working days from the date of closure. However, if the NCD issue is closed before due date on a first come, first serve basis, these would be listed as soon as the issue is closed.

ECL Finance NCDs Vs Muthoot Finance NCDs – Which are best NCDs?

Let us review these 2 NCDs as these have come at the same time.

1) Rate of Interest: ECL Finance NCD offers 10.4% yield for 5 years tenure. In case of Muthoot Finance NCD it offers only 10%.

2) Credit Rating: Both credit ratings are AA/Stable and AA Positive.

You can read ECL Finance NCD 2019 review here.

Should you invest in Muthoot Finance NCD of May 2019?

These NCDs are secured in nature and offer high interest rates. However, investing in NCDs of NBFC company is high risk now. Investing in NCD’s for long term of 5-10 years would be even more risk. Since Muthoot Finance offer NCDs for 24 months, 38 months and 60 months tenure also, high risk investors can invest in these NCDs considering the risks indicated here. One can ignore 10 years NCDs as we do not know how the company would perform in the long run.

Alternatively, you can invest in some of the top large cap mutual funds or good diversified mutual funds that can provide high returns with similar risk though not guaranteed.

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Suresh KP

Muthoot Finance NCD May 2019 Review

The Author

Suresh KP

Suresh KP i.e. me have written 1,800+ articles on this blog. I have done by B.Com from Osmania University and then MBA-Finance from Symbiosis University, Pune. I have over 20 years of experience in analyzing various investment options and money saving ideas. I love doing financial planning, Mutual Fund Analysis, Searching long term Stocks for wealth creation, IPOs, reviewing Insurance Products, analysing Health insurance Plans etc.

8 Comments

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  1. Hello…can u let me know if i invest 10000, how much will i get when. Also, how is yield different than interest rate.

  2. wrong interest rate table for muthoot finance

    1. Hi Murali, We noticed this when the article was published and immediately corrected. Looks the cache is not cleared. we have cleared this now. can you please check whether you are able to see the updated table. Sorry for the error

  3. I do not understand why there is a risk perception for longer tenure of NCDs. These companies or at least Muthoot Finance has been in existence for around 132 years (as per their website) and growing each year. Do you think this company will vanish in next 3 or 5 years after taking away “only your” money.
    In fact, in a falling interest rate scenario, it makes immense sense to lock the investment for a longer period so as to get benefits out of it.
    Please correct me if my views are wrong.

    1. Hi Kamal, We have seen IL&FS Scam, DHFL Crisis, Zee Group payment crisis. All these companies has been existing for some time and are reputed companies earlier. That is the reason I said, there is element of risk, however one can invest in them for short to medium term. In such case, even if there is payment crisis, your payment may get delayed. However in longer run, one would invest and forget about it. If there are any such severe financial crisis in the company and it goes into bankrupt, investor would loose their hard earned money. Yes, I agree that interest rates are falling and NCDs are offering high interest rates, but one has to consider such risk before investing in such NCDs.

  4. 365 days 24×7 Muthoot Finance is in need of Funds

      1. I suspect the Company raises fresh NCDs to redeem maturing NCDs.It amounts to evergreeing.It should generate adequate surplus, build up reserves in order to take up future expansion plans.I won’t touch the issue even with a barge pole.

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