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 100 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 etc.,.

Mahindra & Mahindra Financial Services (MMFSL) is proposing to offer latest NCD issue. M&M Finance is going to offer Secured and Unsecured redeemable NCDs. The proposed public issue will be open for subscription from 4th Jan, 2019 to 25th Jan, 2019.

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’.

Mahindra Financial Services NCD Jan 2019 Public Issue – Key Features

M&M Financial Services is one of the leading Non-Banking Finance Companies (NBFCs) in India. It is part of the Mahindra group, which is one of the largest business conglomerates in India. Below are the  important details on this upcoming NCD Issue (in FY 2018-19) ;

  • NCD Issue opening Date : 4th January, 2019
  • Issue Closes on : 25th Jan, 2019.
  • Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.05% to 9.50% depending on the category of investor and tenure of the NCDs.
  • Issue Size : Base Issue size is Rs 500 cr (with an option to retain over-subscription amount of up to Rs 3,000 cr for Tranche-I. The Secured NCDs shall be allotted for a value of up to Rs. 2500 crore and the Unsecured NCDs shall be allotted for a value of up to Rs. 1000 crore within the overall limit of Rs. 3500 crore.)
  • Mode of Issue : Demat only
  • Face Value or Issue Price of one NCD is Rs 1,000.
  • Available Tenor options : 39 / 60 / 96 / 120 months.
  • Frequency of Interest payment : Annual. Cumulative option is not available.
  • 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. No security will be created for Unsecured NCDs.
  • Credit Ratings : Credit Rating of “CARE AAA (Triple A); Stable” for an amount of up to Rs 10,000 Crore, by Credit Analysis & Research Ltd. and “IND AAA; Stable” for an amount of up to Rs 10,000 Crore, by India Ratings and Research Private Limited.
  • Issue Allocation Ratio : 30% of the Issue is for retail investors & 30% 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.

Mahindra Financial Services NCD Jan 2019 Public Issue – & Coupon Rates

Mahindra & Mahindra Financial Services NCD Jan 2019 Public Issue Details Rate of interest Latest M&M NCD upcoming Issue

(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 Mahindra Financial Services NCD Jan 2019 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 39 months NCD Series This Issue does not offer cumulative option. It offers annual interest pay-out option only. It is prudent to avoid investing in ‘unsecured’ NCD series.

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 Finance / TATA 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 : 29-December-2018) (This article is based on limited available information, if required, the content will be edited.)



9.50% Mahindra Financial Services NCD Jan 2019 Public Issue

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