DHFL Offers CPI Linked Floating Rate NCD Bonds in Aug 2016

DHFL Offers CPI Linked Floating Rate NCD Bonds in Aug 2016DHFL Offers CPI Linked Floating Rate NCD Bonds in Aug 2016

Earlier RBI has launched WPI and CPI Linked Inflation Indexed Bonds and offered 1.5% interest rates over and above CPI Index. Now DHFL is offering India’s first CPI Linked NCD Bonds in August, 2016. These are unique bond schemes where one would get up to 9.2% Interest rates for the first year. This is catching attention of investors now. What are DHFL CPI Linked Floating rate NCD Bonds? How does CPI Linked NCD Bonds would work? Who can invest in such CPI Linked floating rate bonds?

What are DHFL CPI Linked Floating Interest rate NCDs?

DHFL is offering CPI Linked floating interest rates NCD under Series X which is based on Reference CPI plus applicable spread. The specified spread shall be 4.08% p.a. For QIBs and Corporate and 4.18% p.a. For HNIs and Retail Investors. The spread will be fixed throughout the tenor of the Series X NCDs.

E.g. Currently the CPI rate is 5.02%. For the first year, you would get CPI + Spread. Means 5.02% + 4.18% = 9.2%. Second year, if CPI rate changes (increases or reduces), the rate have also changed.

Also Read: Complete review of DHFL NCD Bonds August 2016

Features of DHFL Offers CPI Linked NCD Bonds August 2016

  • DHFL CPI Linked NCD Bonds are the first NCD Bonds being issued in India with CPI Index floating rate.
  • These bonds would open for subscription on 3rd August and closes on 16th August, 2016.
  • Interest rates are linked to the CPI Index along with Spread. Means interest rates is spread + CPI Index. Currently the spread for these NCD bonds are 4.18%. The previous year CPI Index is 5.02%.
  • First year interest rates for these CPI Linked bonds would be 9.2% (Spread of 4.18% + CPI Index 5.02%).
  • Second year onwards interest rates would be reset based on CPI Index.
  • These bonds would have a maturity period of 3 years.
  • DHFL is issuing these bonds along with other bonds for Rs 1,000 Crores with an option to retain oversubscription of Rs 3,000 Crores totaling to Rs 4,000.
  • These bonds would be issued on a first come, first serve basis.
  • These bonds are investor friendly and help investors from inflation.

What is Consumer Price Index (CPI)?

CPI Index is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy. Description: The calculation CPI Index is quite rigorous. Various categories and sub-categories have been made part of the CPI Index for classifying consumption items and on the basis of consumer categories like urban or rural. Based on these indices and sub indices obtained, the final overall index of price is calculated mostly by national statistical agencies. It is one of the most important statistics for an economy and is generally based on the weighted average of the prices of commodities. It gives an idea of the cost of living.

How is Consumer Price Index (CPI) in last 5 years?

CPI Index moved between 7.8% to 5.1% in last 5 years. However, it has increased up to 11.5% in 2012/2013. Hence we cannot rule out that it would stand out at 5.1% current levels. However, there are no indications in the past that it would fall below 5%. Hence minimum one can expect it to be above 5%.

Also Read:  What are Masala Bonds and who is eligible to invest in them?

Should you invest in CPI Linked Inflation NCD Bonds?

With the current spread of 4.18%, one can expect CPI Linked Interest rates over and above the 9 % rate. DHFL is issuing these bonds with 3 year tenure, hence you may need to worry only about 2nd year and 3rd year interest rates. However, one need to take the risk of lower inflation (which may or may not happen) into consideration if you are investing in these CPI linked rate NCD Bonds.

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DHFL Offers CPI Linked Floating Rate NCD Bonds in Aug 2016

Suresh KP



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