The interest rates on Bank fixed deposits may have touched the lowest levels (showing some 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 are spoilt for choice with three public issues of non-convertible debentures (NCDs) worth Rs 18,500 crore lined up for launch in the next 30-45 days to raise money to meet credit demand.
The upcoming NCDs that are lined up are by TATA Capital Finance, Aadhar Housing Finance and Indiabulls Commercial Credit.
Indiabulls Commercial Credit Ltd is proposing to offer latest NCD issue. Indiabullls CCL is going to offer Secured and redeemable NCDs. The proposed public issue will be open for subscription from 11th September, 2018 to 28th September, 2018.
The public Issue of TATA Capital will be open for subscription from 10th September, 2018 to 21st September, 2018. (Related Article : ‘TATA Capital Finance NCDs Sep 2018 Public Issue : Details & Review‘)
Aadhar Housing Finace Ltd is also proposing to offer latest NCD issue. Aadhar HFL is going to offer Secured and redeemable NCDs. The proposed public issue will be open for subscription from 14th September, 2018 to 28th September, 2018. (Related Article : ‘Aadhar HFL NCD (Sep 2018) Public Issue – Review‘)
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’.
Indiabulls Commercial Credit NCD Sep 2018 Public Issue – Review- Key Features
Indiabulls Commercial Credit Ltd (ICCL) is a non-deposit taking NBFC registered with the RBI and a 100% subsidiary of one of the largest housing finance companies (“HFCs”) in India.
ICCL operates under the “Indiabulls” brand name, which is a reference to the Indiabulls group of companies, a diversified set of businesses in the financial services, real estate and securities sectors.
Indiabulls Commercial Credit Limited focuses primarily on long-term secured mortgage-backed loans. It offers loans against property to target client base of salaried and self-employed individuals and small and medium-sized enterprises. The company also offers mortgage loans to real estate developers in India in the form of lease rental discounting for commercial premises and construction finance for the construction of residential premises.
Below are the few important details about upcoming Indiabulls Commercial Credit September 2018 NCD issue (FY 2018-19) ;
- NCD Issue opening Date : 11th Sep, 2018
- Issue Closes on : 28th Sep, 2018.
- Interest Rate or Coupon Rate on NCDs : The ROI ranges from 8.70% to 9.20% depending on the category of investor and tenure of the NCDs.
- Issue Size : Base Issue size is Rs 1,00 cr (with an option to retain oversubscription amount of up to Rs 1,000 cr more)
- Mode of Issue : Demat
- Face Value or Issue Price of one NCD is Rs 1,000.
- Available Tenor options : 2 years to 10 years
- Frequency of Interest payment : Monthly & Annual. Cumulative option is available for 2 & 3 year 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 NSE and BSE. The NCDs shall be listed within 12 Working Days from the date of Issue Closure
- 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 : Credit Rating of “CRISIL AAA/Stable” for an amount of Rs. 3,000 crore, by CRISIL Limited and “CARE AAA; Stable” for an amount of Rs. 3,000 crore, by CARE Ratings Limited.
- 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.
Rate of Interest on latest NCD Issue by Indiabulls Commercial Credit
Under the two year tenure NCD series (cumulative option), if you invest Rs 1,000 then you will receive Rs 1,183.47 on the maturity date.
Under the three year tenure NCD series (cumulative option), if you invest Rs 1,000 then you will receive Rs 1,291.77 on the maturity date.
If the Applicants have not indicated the choice of the relevant NCD Series, the Company shall allocate and allot 5 year tenure NCDs (Non-cumulative & Annual interest payment option) by default.
Should you invest in Indiabulls Commercial Credit NCD Issue (Sep 2018)?
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). Considering this scenario, if you are looking for regular interest income and are in 10% or 20% income tax slab rate, you may consider investing in up to three year (cumulative/non-cumulative) Secured NCDs.
Given a choice, I order of preference would be TATA Capital NCDs, Indiabulls Commercial Credit NCDs and then followed by Aadhar HFL’s NCD Issue. The conservative investors who are looking for fixed income alternatives, can consider investing in these (TATA) NCDs, as it is not easy to find many ‘AAA’ rated issues these days offering coupon rates higher than the bank FDs.
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, Post office Senior Citizen Savings Scheme, 7.75% GoI Bonds etc.,
Have you invested in any of the recent Public Issues of NCDs (Shriram Transport Fin / JM Financial / DHFL)? Do you prefer NCDs to Bank FDs? Do you believe that upcoming NCDs may offer even better interest rates? Kindly share your views. Cheers!
Continue reading :
- What are NCDs? How to buy best NCD? Tax Implications on NCDs
- List of Best Investment Options
- Best Lump sum Investment options for Retirees/Senior Citizens to get Regular Income?
- How to check if a Company can collect Deposits from the Public? (Company FD Schemes)
(Featured Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net) (Post first published on : 07-Sep-2018) (This article is based on limited available information, if required, the content will be edited.)
Dear
I have applied 100 NCD on ICCL. Amount got debited from my account and understand from Integrated that ICCL had not alloted any NCD for me.
But pain part that till date ICCL had not repayed my money back.
Integrated says that since the issue was over subscribed and got closed earlier than stipulate date, this had happen. Also I am told that i will get any Interest for this one month period.
Is this the way we need to work.
Dear Vijayakumar,
Did you receive the refund ?
Hi … how can I apply for NCD without DMAT account ?..
Dear Aditya,
Indiabulls Commercial Credit(ICCL) has intimated the closure of Public issue of NCD on Friday, September 14, 2018 (‘Early Issue Closure Date’) owing to its getting oversubscribed”
One can apply to NCD Issues without Demat (if allowed) through authorized financial institutions, brokers, Registrar offices etc.,
You can find these details in the Application form / Prospectus.
I WANT TO SHOW THAT I AM SR.CITIZEN BEING APPY PUBLIC ISSUE OF CO’S IN 80 , 90 ETC. I WAS ALLOTED AT PAR DR.REDDY LAB.HERO HONDA, HDFC BANK,GRU FINANCE.DCM TYOTA ARE SHARES I WAS ALLOTED AFTER SIX MONTHS OF ALLOTMENTS .LOT OF SHARES / DEBENTURES ARE WITH ME THESE ARE NOW NOT LISTED OR TRADED AT PRESENT
I AM NOT INTERESTED IN MUTUAL FUND ALSO.
KINDLY ADVICE ME WHERE TO INVEST MY RETIREMENT FUND IN FIXED INCOME RETURN.I INVESTD RS.15 LAKH IN SR.CITIZEN SCHEAM ALSO.WANT TO INVEST MORE. ONLY ANNUITY PENSION FUND IN MY SHARE OF EMPLOYER/ EMPLOYEE SHARE APP.RS.SIX LAKH FIFTY THOUSAND IN LIC. IN WHICH LIC SCHEAM I CHOSE WHERE I SHALL GET PENSION FUND WITHIN SHORT PERIOD.
I SOLD ALLOTED SHARE AFTET SIX MONTHS & GET GAIN OR LOSS .NOW I AM FED UP WITH EQUITY, NCD& MUTUAL FUNDS.
WHERE TO INVEST TO GET RS.THIRTY THOUSAND APP.PER MONTH FOR MONTHLY NEEDS.
ONE SON MARRIED, SECOND IN WORKING GURUGRAMME ON TEMPORARY IN THE CO.HE IS B.TEC.IN ECE.
Dear Dear Vipan ji,
You may kindly go through below articles and revert to me with more queries, if any;
* Lump sum Investment options for Retirees/Senior Citizens | Where to invest my Retiral benefits to get Regular Income?
* Retirement Planning in 3 Easy steps
WHAT ABOUT FIXED DEPOSIT AT YES BANK ,I KNOW THAT FD AMOUNT IS SECURED UP TO RS.ONE LAKH ONLY .IS IT ADVICABLE TO INVEST ABOUT 30 TO 40 LAKH DUE MAXIMUM RATE OF INTETEST IN BANKING SECTOR.
KINDLY ADICE ME.
Sir
Indibulls ncd are secured for 10 years
Where as tata ncd is unsecured for 10 yrs
Why this differnce
Amit
Dear Amit,
That’s how they have structure their respective NCD public issues.