These Muthoot Fincorp NCD Bonds of Dec-20 offer 9.4% interest rates
Muthoot Fincorp is coming up with secured and unsecured NCD bonds Issue that would open for subscription on 31st December, 2020. Muthoot Fincorp Limited is leading NBFC company in India. Muthoot Fincorp offers interest rates are up to 9.4%. These bonds for issued for 27 months to 72 months tenure and one can get fixed income, either monthly, yearly or on maturity. Should you invest in Muthoot Fincorp NCDs of December, 2020? What are the risk factors one should consider before investing in such high risk NCDs?
Also Read: Best Safe Investments with high returns
About Muthoot Fincorp Limited
They are, a non-deposit taking systemically important NBFC in India. The company emerged as a prominent gold loan player with 75% growth in its gold loan portfolio to Rs 39,700 lakhs in FY 2011. From FY 2014 to FY 2019, the company has shown a significant increase in its gold loan portfolio at a compound annual growth of around 13%. The personal and business loans secured by gold jewelry and ornaments offered by the company are structured to serve the business and personal purposes of 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.
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.
Features of Muthoot Fincorp NCD – Dec-20 / Jan-21
Issue start date: 31-December-2020
Issue end date: 25-January-2021
NCD’s are available in 9 options. It offers NCD bonds for 27 months, 38 months, 60 months and 72 months tenure.
Coupon interest rates are between 8.57% to 9.4%.
They are issuing both secured redeemable NCDs and unsecured 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 200 Crores with an option to retain over subscription up to Rs 200 Crores totaling to Rs 400 Crores.
This NCD issue security symbol is MFINCORP7.
SMC Capitals Limited is the lead manager for the issue.
Interest rates of Muthoot Fincorp NCDs – Dec-20/Jan-2021
What are the credit ratings for these NCDs?
The Secured NCDs have been rated as 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.
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 – 257.9 Crores
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 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 9.4% per annum.
4) It issues both secured and unsecured NCDs. Regd 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. One can ignore unsecured NCDs.
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 we 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) The 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) The 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 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.
Should you invest in Muthoot Fincorp NCD in 2020?
We have given our views earlier, but let me reiterate again.
1) Banks are reducing the interest rates month on month and the interest rates are now between 4.5% to 5.5% per annum. Muthoot Fincorp is offering secured NCDs that offers high interest rates up to 9.4%.
2) One should not forget about NBFC crisis that started 3 years 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 company NCD bonds. 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 in these NCDs. I would re-iterate again that these are high risk, hence invest only a small portion in such investment options.
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