8% Muthoot Finance NCD opens on 27 October, 2020 – Should you invest?

Muthoot Finance NCD opens on 27 October, 2020 - ReviewMuthoot Finance NCD opens on 27 October, 2020 – A review


Muthoot Finance is coming up with secured NCD bonds Issue that would open for subscription on October 27, 2020. Muthoot Finance Limited is leading NBFC company in India. Muthoot Finance NCD interest rates are up to 7.75% and yield works out up to 8%. Muthoot Finance offers these bonds for 38 months and 60 months tenure and one can get fixed income, either monthly, yearly or on maturity. Should you invest in Muthoot Finance NCD October, 2020? What are the risk factors one should consider before investing in such high risk NCDs?

Also Read: Best Fixed Deposit Interest Rates for 1 to 5 years

About Muthoot Finance Limited

They are Systemically Important Non-Deposit Taking NBFC.

Since its formation, they have broadened the scale and geographic scope of its gold loan operations so that, as of March 31, 2012, they were India’s largest provider of Gold Loans.

For the years ended March 31, 2016, 2017, 2018, 2019 and 2020, revenues from its gold loan business constituted 98.49%, 97.95%, 97.64%, 97.32% and 96.81% respectively of its total income.

In addition to its Gold Loans business, they provide money transfer services through its branches as sub-agents of various registered money transfer agencies and also provide collection agency services.

They have started providing unsecured loans to salaried individuals and loans to traders and self-employed.

They also provide micro-finance, housing finance, vehicle and equipment finance and insurance broking services through its subsidiaries.

Muthoot Finance NCD October, 2020 – Features and Issue Details

Subscription opens on 27-October-2020

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Subscription closes on 20-November-2020

NCD’s are available in 6 options. It offers NCD bonds for 38 months and 60 months tenure.

Coupon interest rates are between 7.15% to 8%.  Yield on these bonds are up to 8%.

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 within 6 working days from the issue closure date. 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 1,900 Crores totaling to Rs 2,000 Crores.

Edelweiss Financial Services, JM Financials, Equirus Capital and AK Capital Services are the lead managers for the issue.

Download Muthoot Finance NCD Prospectus

Interest rates of Muthoot Finance NCDs for October, 2020

Muthoot Finance NCD October 2020 - Interest Rates

What are the credit ratings for these NCDs?

The Secured NCDs have been rated as ICRA AA/Stable from ICRA ratings and CRISIL AA/Positive by CRISIL which indicates high degree of safety regarding timely servicing of financial obligations. One should understand about credit ratings for fixed income options to asses the risk of investing in such options.

How is the company doing in terms of profits?

Its consolidated profits are as below:

Quarter ending Mar-2020 – Rs 835 Crores

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Quarter ending June-2020 – Rs 857 Crores

Why to invest in these NCDs of Muthoot Finance?

1) The company is earning consistent margins. 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 8% 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 for the past few months have impact on its operations and financial condition. The situation is yet to improve.

2) Its financial performance is particularly vulnerable to interest rate risk. If they fail to adequately manage 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.

3) 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 or through any of the broker website where you are maintaining a demat account. Application forms can be downloaded on the lead manager web site. For more information on this you can refer prospectus.

Also Read: Post Office FD offers 6.7% interest rates

Should you invest in Muthoot Finance NCD in 2020?

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Here are a few thoughts about such NCDs:

1) Banks are reducing the interest rates month on month and the interest rates are now between 4% to 6% per annum. Muthoot Finance is offering secured NCDs that offers high interest rates up to 8%. This would definitely attract investors who are looking to earn high income.

2) One should not forget about NBFC crisis (e.g. DHFL crisis) that started 10 quarters back. Your investment as well as interest could be at risk and there could be delay in repayment of your matured NCDs.

3) Don’t put your hard earned money in single NCD bond. Always diversify your portfolio by investing in multiple investment options.

4) If you are a high risk investor and willing to consider all the risks indicated above, you can invest small portion of your portfolio in such NCDs.

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Suresh KP

4 comments

  • Tom

    Thks,Suresh, you seem to be right there !

    Self & family are fine,but taking extra care, and thankfully not really affected by Lockdown etc

    As far as Investments are concerned,I look for AA or better rated NCDs and actually identified this Muthoot NCD ,but was late it aeems !

    Not really keen to enter equity market for another year,except for any bargain hunting !

    Thks once again for your concern !

  • Tom

    Hi Suresh,I regularly read ‘investmentideas’ and would like to point out an error in the write up on Muthoot Finance NCDs issue Oct 2020. In your column it was mentioned that issue is open till 20 November 2020,but the issue was closed on 29 October !

    (Issue Open Oct 27, 2020 – Oct 29, 2020) – this is from the Muthoot site !

    Probably your staff mixed up this with Muthoot Mini Finance NCD which is open till 20 November !

    • Hello Tom, This is not an error. Pls refer the NCD prospectus link given in article and go to first page and check “TRANCHE I ISSUE CLOSES ON NOVEMBER 20, 2020”. The data is correct. One should note that these NCDs are served on first come first serve basis. If the issue is subscribed fully before last date, the issue would be closed before the end date indicated in the prospectus.

      Otherwise, how are you and your family? Where are you investing these days?

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