8% Muthoot Finance NCD 2022: Should You Invest In Them?

NCDs or non convertible debentures are nothing but bonds using which the corporates issue to raise fund. These are called non-convertible as for them there is no scope for conversion into equity or stocks. These are advantageous to fixed income investors as they offer a higher return, less risky and also offer tax benefits.

Further, investors can get interest on them as per the company specifications on the issued bonds i.e. they have the option to get it either monthly, quarterly or cumulatively,

So, here is a NCD that offers a higher return than Bank Fds

NCD details

The issue period for these bonds is from April 7-April 28, 2022. The base size of the NCD issuance or the minimum amount to be mopped up from the NCD is Rs. 100 crore with the option to mop up additional Rs. 400 crore.

Issue price is Rs. 1000 per NCD

Minimum 10 NCD I.e involve a minimum investment of Rs. 10000

About the NCD issuing company or Muthoot Finance

This company has a strong presence in the gold financing market and in the last December ended quarter. Revenue from operations and net profit at the firm increased both sequentially and YoY with net profit for the December ended quarter coming in at Rs. 1028.86 crore.

NCD issuance objective:

The proceeds from the NCD will be deployed towards lending purposes as well as general corporate purposes.

Interest rate

	Series 1	Series 2	Series 3	Series 4	Series 5	Series 6	Series 7	Series 8
Frequency of Interest Payment	Monthly	Monthly	Annual	Annual	Annual	Annual	NA	NA
Nature	Secured
Tenor	36 months	60 months	36 months	60 months	84 months	120 months	36 months	60 months
Coupon Rate (Retail)	7.00%	7.25%	7.25%	7.50%	7.75%	8.00%	7.25%	7.50%
Effective Yield (% per Annum)	7.00%	7.25%	7.25%	7.50%	7.75%	8.00%	7.25%	7.50%
Amount on Maturity	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,233.65	Rs 1,435.63

Credit Rating

For NCD, as the financials of the company vary from time to time there is less of safety in comparison to Fds at banks. Nevertheless for higher return in need to take in slightly a higher risk. The NCDs from Muthoot are rated by ICRA as AA+/Stable signifying high safety for the investors in respect of both their principal as well as interest amount.

Conclusion:

NCDs also have taxation implication and this is dependent on the tax bracket investors falls under. If NCDs are sold in a year then STCG shall be applicable as per the slab rate. Further in a case if they are held for over a year and sold then LTCG at the rate of 20% shall apply together with indexation. Further interest from NCDs shall be charged under the head income from other sources. So, knowing the tax aspect also and only in a case if your risk appetite allows you can pocket in this investment for short to medium term as in the long term there remains interest rate risk as well as default risk.