Ms. Anu Patel (one of the readers), asks whether she can invest Rs 1 lakh in these bonds for 5 years which would grow to Rs 1.6 lakhs and checking whether it is a wise investment decision. Muthoot Fincorp is coming up with secured NCD bonds Issue that would open for subscription on 29 June 2020. Muthoot Fincorp Limited is leading NBFC company in India. Muthoot Fincorp NCD interest rates are up to 9.75% and yield works out up to 10%. Muthoot Fincorp offers these bonds for 24 months to 60 months tenure and one can get fixed income, either monthly or yearly or opt for on maturity. One can invest Rs 1 Lakh which would grow to Rs 1.6 Lakhs in 5 years. Should you invest in Muthoot Fincorp NCD June, 2020? What are the risk factors one should consider before investing in such high risk NCDs?
About Muthoot Fincorp Limited
They are a non-deposit taking, systemically important NBFC. Company is one of the largest Indian NBFCs engaged primarily in the business of providing personal and business loans secured by gold jewelry and ornaments. Its gold loan products are structured to serve the business and personal purposes by individuals who do not have ready or timely access to formal credit or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements. The Gold loan portfolio of the Company as of June 30, 2019 comprised approximately 28.50 Lakhs loan accounts that were serviced through 3,551 branches located across 19 states, the union territory of Andaman and Nicobar Islands and the national capital territory of Delhi. They have been engaged in the Gold loans business for over a decade and are headquartered in Kerala.
Muthoot Finance Vs Muthoot Fincorp – Are they same?
Muthoot Fincorp and Muthoot Finance are two separate companies without any common promoters. Muthoot Fincorp is headed by Thomas John Muthoot, while Muthoot Finance is headed by M G George Muthoot. While the two parameters are family, cousins, they have no mutual business relations.
Muthoot Fincorp NCD June, 2020 Issue details
Issue start date: 29-June-2020
Issue end date: 17-July-2020
NCD’s are available in 9 options. It offers NCD bonds for 24 months, 36 months and 60 months tenure.
Coupon interest rates are between 9% to 9.75%.
Yield on these bonds are up to 10%.
These are secured redeemable NCDs.
Interest payable monthly, yearly and on maturity depending on the option chosen by the NCD investor.
The face value of the NCD bond is Rs 1000.
Minimum investment is for the 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.
NRI’s cannot apply to this NCD subscription.
The base issue size is Rs 100 Crores with an option to retain over subscription up to Rs 60 Crores totaling to Rs 160 Crores.
This NCD issue security symbol is MFINCORP6.
SMC Capitals Limited is the lead manager for the issue.
Interest rates of Muthoot Fincorp NCDs for June, 2020
How much you get if you invest Rs 1 Lakh in the cumulative interest plan?
What are the credit ratings for these NCDs?
The Secured NCDs have been rated by as BWR A+ from Brickwork ratings and A (Stable) by CRISIL indicate that instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations and carry lowest credit risk. One should understand about credit ratings for fixed income options to asses the risk of investing in such options.
How Muthoot Fincorp NCDs are secured?
The principal amount of the NCDs to be issued in terms of this Prospectus together with all interest due on the NCDs, as well as all costs, charges, all fees, remuneration of Debenture Trustee and expenses payable in respect thereof shall be secured by way of
(i) The subservient charge on certain loan receivables (both present and future) of the company in favor of the Debenture Trustee; and
(ii) Mortgage and first charge over the immovable property admeasuring 54 cents situated at Survey No 764/6A, Arulvaimozhy Village, Thovala Taluk, Kanyakumari District, Tamil Nadu.
When these NCD bonds would be listed on stock exchanges?
The NCDs are proposed to be listed on BSE. The NCDs shall be listed within 6 working days from the date of the issue closure.
How is the company doing in terms of profits?
Its consolidated profits are as below:
Year ended Mar-2018 – Rs 119.8 Crores
Year ended Mar-2019 – Rs 372.6 Crores
Year ended Mar-2020 – Not available in the prospectus
How the returns from these NCD bonds are taxed?
Since you need to apply through the demat form only, there would not be any TDS deduction 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 and pay income tax based on the individual tax bracket.
Why to invest in these NCDs of Muthoot Fincorp?
1) The company is earning consistent and improving margins in the last few years. This indicates that this company has ability to consistently pay the interest rates for its creditors or NCD holders.
3) These NCDs offer attractive interest rates where investors can get interest up to 9.75% and yield up to 10% per annum.
4) It issues secured NCDs. In case of any non performance of the company and the company gets closed for some reason, NCD investors would get preference in repayment of capital along with interest as those backed up by assets of the company. Hence it is safe to invest in such secured NCD options.
Why not to invest in these bonds?
1) The spread of COVID-19 pandemic and the consequent nationwide lockdown to impact its operations and financial condition.
2) The company’s credit profile may take an impact because of real estate property acquisition, since such acquisitions brings real estate sector risks.
3) Its business requires substantial capital, and any disruption in funding sources would have a material adverse effect on its liquidity and financial condition.
4) Any instructions by RBI or other regulatory authority in India directing the company to stop the use of its premises/ branches or officials for the operations of its Group entities could materially and adversely affect its business and impact its future financial performance.
5) Its financial performance is particularly vulnerable to interest rate risk. If they fail to adequately manage its interest rate risk in the future it could have an adverse effect on its net interest margin, thereby adversely affecting its business and financial condition.
6) Company is involved in certain legal proceedings for non-registration under certain State legislations in India relating to “money lending” activities. Any unfavorable outcome of such proceedings and the imposition of any additional restrictive statutory and/or regulatory requirements may adversely affect its goodwill, business prospects and results of operations.
7) Company has been subject to RBI inspections and any adverse action taken could affect the business and operations of the Company.
8) Refer prospectus for complete risk factors.
How to subscribe to these bonds?
This issue is available in only in demat form. You can apply online through by logging to your demat account. Application forms can be downloaded on the lead manager web site. For more information refer prospectus.
Should you invest in Muthoot Fincorp NCD in 2020?
Here are a few thoughts:
1) Banks are reducing the interest rates month on month and the interest rates are now between 5% to 6.5% per annum. Muthoot Fincorp is offering secured NCDs that offers high interest rates up to 9.75% and yield up to 10%.
2) One should not forget about NBFC crisis that started 8-10 quarters back. Your interest payment or repayment of capital might get delayed if invested in the NBFC companies.
3) Don’t put your hard earned money in single NCD bond or fixed deposit or in 1 equity mutual fund. Always diversify your portfolio by investing in multiple investment plans.
4) If you are a high risk investor and willing to consider all the risks indicated above, you can invest in these NCDs. I would re-iterate again, that these are high risk, hence invest only a small portion in such investment options if you still want to proceed.
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Muthoot Fincorp NCD June 2020 Review