The interest rates on Bank fixed deposits may have touched the lowest levels (showing signs of an up-tick now) and the interest rates on popular small savings schemes are not very attractive either. Also, Tax Free Bond Issues are not available now. This is inducing many small investors to look out for better fixed income products which can give decent fixed rate of return.

NCDs or Non Convertible Debentures are one of the fixed income options that can satiate investors’ hunger for better yield.

Fixed income investors were spoilt for choice with four public issues of non-convertible debentures (NCDs) worth more than Rs 19,000 crore were launched during last 30-90 days to raise money to meet credit demand. The recent NCD Issues were offered by TATA Capital, Aadhar Housing, Indiabulls Commercial, Shriram Transport Finance & Manappuram Finance.

JM Financial Credit Solutions Ltd (JMFCSL) is proposing to offer latest NCD issue. JM Financial is going to offer Secured and redeemable NCDs. The proposed public issue will be open for subscription from 20th Nov, 2018 to 20th December, 2018.

What is a Debenture?

Debenture is a type of Debt instrument which offers a fixed rate of interest for a specified tenure. Companies or governments use debentures to borrow money. Debentures are simply loans taken by the companies and do not provide the ownership in the company.

What are NCDs?

Debentures are of two types Convertible and Non-Convertible. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides attraction to the investor but yield lower interest rates. Non convertible debentures does not convert into equity shares thus can yield a higher interest rate.

An NCD can be Secured or Unsecured. Secured NCDs are backed by the issuer company’s assets to fulfill the debt obligation unlike unsecured NCDs. Below is a short video on ‘basics of NCDs’.

JM Financial NCDs Nov-Dec 2018 Public Issue – Key Features

JM Financial is a non-banking finance company, provides integrated financial solutions to real estate developers with a focus
on residential project financing such as funding real estate developers at various stages in the life cycle of a real estate project. The product portfolio consists of Project Finance, Loans against property, Loans against shares, Project at early stage loans and Loans against land.

Below are the few important details about upcoming JM Financial Credit Solutions Nov 2018 NCD issue (FY 2018-19) ;

  • NCD Issue opening Date : 2oth Nov, 2018
  • Issue Closes on : 20th Dec, 2018.
  • Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.67% to 10.25% depending on the category of investor and tenure of the NCDs.
  • Issue Size : Base Issue size is Rs 250 cr (with an option to retain over-subscription amount of up to Rs 1,000 cr for Tranche-II. Total issue size is Rs 1,250 cr)
  • Mode of Issue : Demat
  • Face Value or Issue Price of one NCD is Rs 1,000.
  • Available Tenor options : 42 months / 5 years / 10 years
  • Frequency of Interest payment : Monthly & Annual. Cumulative options is available for 42 months tenure NCD series.
  • Minimum Application size : Rs 10,000 (10 NCDs) and in multiple of Rs 1,000 thereafter.
  • Listing : The NCDs are proposed to be listed on BSE stock exchange.
  • Security & Asset Cover : The Company and Promoter will create and maintain appropriate security in favour of the Debenture Trustee for the NCD Holders on the assets adequate to ensure required asset cover for the Secured NCDs.
  • Credit Ratings : The NCDs have been rated [ICRA] AA/Stable by ICRA for an amount of up to Rs. 2,000 Crores and IND AA/Stable by India Ratings for an amount up to Rs. 2,000 Crores.
  • Issue Allocation Ratio : 40% of the Issue is for retail investors & 40% for HNIs (HNIs – individuals (applying for an amount of > Rs 10 lakh).
  • PUT & Call options : No Put & Call options are available. (What are Put & Call options? – NCDs can have Put or Call options. If a company issues a ‘Callable Debenture’, it means that it can be redeemed by the Issuer (company) before the bond’s maturity. A debenture with a ‘Put option’ works in exactly the opposite manner, wherein the investor can sell the bond to the issuer at a specified price before its maturity.)
  • Allotment of NCDs is on ‘first come, first serve’ basis.
  • NRIs are not eligible to apply to this NCD issue.
  • As on every Record Date fixed by the Company for the payment of Coupon/Interest, all the NCD Holders of the Tranche II Issue to whom the NCDs are allotted by the Company on the Deemed Date of Allotment and to whom allotment of NCDs was made by the Company on the Deemed Date of Allotment defined in Tranche I Issue, shall be eligible for receiving additional Coupon/Interest rate amounting to 0.15% p.a., payable over and above the specific Coupon/Interest rate for the Options/Series subscribed in the Tranche II Issue. The additional incentive will be paid to those NCD Holders who have applied Options/Series having tenures of 60 months or 120 months only. Further, the additional incentive would be applicable across all categories of investors.

JM Financial NCDs Nov-Dec 2018 Public Issue & Coupon Rates

JM Financial NCDs Nov 2018 Public Issue Latest NCD issue by JM Financial Credit Solutions Ltd Dec 2018

(Click on the above image to open it in a new browser window)

Debentures & Taxation 

  • TDS is not applicable on the listed debentures’ interest payouts (which are in Demat form). Else, TDS will be applicable if the interest exceeds the threshold limit of Rs.5,000/- in a financial year.
  • Interest earned on NCD bonds is taxable as per the tax slab of the investor.
  • If you sell NCDs on stock exchange before one year from the date of purchase, Short Term Capital Gains Tax is applicable. Tax rates depend on the tax slab you fall into.
  • If you sell NCDs on stock exchange before maturity but after one year, Long Term Capital Gains Tax (if any) at 20% with indexation & 10% without indexation is applicable.

Should you invest in JM Financial Credit Solutions NCDs Nov-Dec 2018 Public Issue?

As we all are aware that interest rates on fixed income securities have reached their lowest levels. The bank interest rates are showing some signs of up-trend, hence it is advisable to avoid investing in medium to long-term NCDs now. Also, the NPA (Non-Performing Assets) related problems have been plaguing the banking sector (NBFCs as well). Also, the current cash/liquidity crunch may have a deeper impact on NBFCs businesses in the near future.

Considering this scenario, if you could afford to take some risk, looking for regular interest income and are in 10% or 20% income tax slab rate, you may consider investing in up to 4 year (cumulative/non-cumulative) Secured NCDs of this issue. But, kindly understand the risks associated with NCDs and then take informed decision.

Before investing in NCDs, kindly calculate your post tax returns on debentures and take your decision, as the interest payouts are taxable.

Post-tax returns = Pre-Tax returns * { (100-Tax Rate) / 100 }

Are NCDs totally risk-free? – No, they are not risk-free. These carry higher risk than bank deposits. The main risk with NCDs is default risk. The issuer may not be able pay the interest payments.

NCDs are relatively safer assets than Stocks and mutual funds but they are riskier than bank FDs and Government bonds. NCD Issuers normally do not default but when things go drastically wrong, they may face problem in paying the investors.

The main risk with NCDs is default risk. The issuer may not be able to pay the interest payments. NCD Issuers, especially the top business groups, normally do not default but when things go drastically wrong, they may face problem in paying the investors. In such a scenario, secured NCD holders (if any) would be given higher priority than the holders of Subordinated NCDs.

Kindly keep in mind all the above points when investing in NCDs. Also, do not invest your entire savings or investible surplus in one NCD issue alone.

You may consider other alternative fixed income avenues like Debt oriented Mutual Funds, Hybrid Mutual Funds, Post office MIS scheme, PPF, Post office Senior Citizen Savings Scheme, 7.75% GoI Bonds etc.,

Have you invested in any of the recent Public Issues of NCDs (Manappuram Finance Shriram Transport FinanceTATA Capital  / Indiabulls Commercial )? Do you prefer NCDs to Bank FDs? Do you believe that upcoming NCDs may offer even better interest rates? Kindly share your views. Cheers!

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(Featured Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net) (Post first published on : 14-Nov-2018) (This article is based on limited available information, if required, the content will be edited.)



10.25% JM Financial NCDs Nov 2018 Public Issue : Details & Review

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