Muthoot Finance NCDs offer 9.25-10% interest; Should you invest?

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Published: September 27, 2019 5:11:04 PM

The NCDs are also proposed to be listed on BSE. The allotment is based on first come first serve basis, and the company says that the funds raised through this issue will be utilized primarily for lending activities.

NCD, non convertable debentures, Muthoot Finance, ncds, retail investors, retail investors, Interest payments on NCD, latest news The Muthoot Finance NCD is rated by two Credit Rating Agencies – Crisil and ICRA.

Muthoot Finance Ltd has announced its 21st series of Public Issue of Secured Redeemable Non-convertible Debentures (NCD). It is their third tranche of NCDs, which will be paying interest rate ranging from 9.25 per cent to 10 per cent. The issue, which opened for subscription on September 27, 2019, closes on October 25, 2019, with an option to close on such earlier date or an extended date.

The issue is with a base issue size of Rs 100 crore with an option to retain oversubscription up to Rs 900 crore aggregating up to a tranche limit of Rs 1,000 crore. The NCDs are also proposed to be listed on BSE. The allotment is based on first come first serve basis, and the company says that the funds raised through this issue will be utilized primarily for lending activities.

The Muthoot Finance NCD is rated by two Credit Rating Agencies – Crisil and ICRA. With monthly or annual interest payment frequency or on maturity redemption payments, there are ten investment options for Secured NCDs.

Should you invest in it?

As returns of these NCDs are attractive, investors tend to invest more than they should. Experts suggest one should not engage more than 20 per cent of one’s overall portfolios in company deposits, even though returns of these NCDs are attractive. Try to stick to around 3 per cent of your portfolio while investing in one company.

Also, there are certain things that investors should look at before investing in NCDs. For instance, its credit ratings. Companies with AAA-rating by credit rating agencies are considered to have the highest degree of safety regarding timely servicing of financial obligations. These ratings show that instruments with AAA-rating carry the lowest credit risk. Muthoot Finance’s NCD comes with a slightly lower credit rating of ‘AA/Stable’ by rating agency ICRA and Crisil. Crisil on their website explains, ‘AA’ rating means ‘instruments with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.’

The attraction behind NCDs is that with similar tenures they usually offer rates higher than bank fixed deposits. SBI, at present, is offering 6.25 per cent interest on its five-year fixed deposit whereas depending on the lock-in period NCDs are offering a return of 9-12 per cent.

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