Indiabulls Consumer Finance NCD Feb 2019 Public Issue : Details & Review

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 20,000 crore were launched during last 100 days to raise money to meet credit demand. The recent NCD Issues were offered by Manappuram Finance, India Infoline, TATA Capital, Aadhar Housing, Indiabulls Commercial, Shriram Transport Finance etc.,.

Indiabulls Consumer Finance Ltd (ICFL) is proposing to offer latest NCD issue. ICFLis going to offer Secured redeemable NCDs. The proposed public issue of these Bonds will be open for subscription from 4th February, 2019 to 4th March, 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’.

Indiabulls Consumer Finance NCD Feb 2019 Public Issue | Key Features

Indiabulls Consumer Finance Ltd (ICFL) is part of the Indiabulls Ventures group, which is a prominent financial services company providing brokering, lending and wealth management businesses, amongst other businesses.

As at March 31, 2018, its gross NPAs as a percentage of AUM was 0.05%, and net NPAs as a percentage of AUM was 0.05%.

Below are the few important details about upcoming Indiabulls Consumer Finance NCD Feb 2019  (FY 2018-19) ;

  • NCD Issue opening Date : 4th February, 2019
  • Issue Closes on : 4th Mar, 2019.
  • Interest Rate or Coupon Rate on NCDs : The ROI ranges from 10.40% to 11% 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 2,750 cr for Tranche-I.)
  • Mode of Issue : Demat only
  • Face Value or Issue Price of one NCD is Rs 1,000.
  • Available Tenor options : 26 / 38 / 60 months
  • Frequency of Interest payment : Monthly & Annual. Cumulative options are also 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 & NSE stock exchanges.
  • 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 “CARE AA; Outlook: Stable” for an amount of Rs. 3,000 crore, by CARE Ratings Limited and “BWR AA+; Outlook: Stable” for an amount of Rs. 3,000 crore, by Brickwork Ratings.
  • 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 : Put & Call options are not 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.

Latest Indiabulls Consumer Finance NCD Feb 2019 Issue – Coupon Rates

Indiabulls Consumer Finance NCD Feb 2019 Public issue 11% Latest NCD Issue
Indiabulls Consumer Finance NCD Feb 2019 Public issue – Latest NCD Issue

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 Indiabulls Consumer Finance NCD Feb 2019 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). The current cash/liquidity crunch may also have a deeper impact on NBFCs businesses in the near future.

Just a few months back Indiabulls Commercial Credit had come up with its NCD Isssue in Sep 2018. The interest rates offered were around 9%. If you notice that Indiabulls commercial Fin is now offering rates of around 10 to 11%. This shows that NBFCs are finding it tough to get the credit and hence are ready to offer attractive rates through NCD offerings.

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 26 / 38 month 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 (India Infoline Jan 2019 NCD Issue / Mahindra Finance (Jan 2019 Issue) / Manappuram Finance Shriram Transport FinanceTATA Capital )? 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 : 01-February-2019) (This article is based on limited available information, if required, the content will be edited.)

  • Second home says:

    Dear Vinothkumar,
    Kindly note that Liquids funds are one of the types of Debt Funds.
    Indexation benefit is not applicable for Equity funds/Stocks.

  • Ajay Sheoran says:

    Hi Shree,
    I have recently sold my car and looking to invest the amount (5L). Please do advise where to invest and investment period I am looking for is 24 to 36 months. Needless to say I am looking for a risk free investment.
    Thank you

  • sudhakar says:

    sir , i want to sale my house for 15 lacks which is purchased in the year 2010 @ 7.2 lacks how much i have to pay for tax and what is the best option for investment.

  • sharad says:

    Thanks
    Would like to know if one can invest in PPF more than the tax exemption limit of Rs 150000/-

  • AcK says:

    Quick question – what is the tax treatment of cumulative ncd when held till maturity.

    • Sreekanth Reddy says:

      Hi,
      The accumulated amount is Tax-exempt, if you show the interest income is as taxable income yearly in your ITR.

      • AcK says:

        Yeah but why would you do that – personal income tax is always calculated on cash basis, not accrual basis. So assume we dont show interest income yearly in ETR – what happens when we get the principal+accumulated interest back after 5 years (say)?? Is this treated as interest income or cap gains (also say bond was listed).

        • Sreekanth Reddy says:

          Hi,
          Not necessarily :
          For instance, the taxes on Bank FD (over and above the TDS amount) and full tax amount on RD can be paid either in every financial year (or) on maturity. We can choose when to pay the taxes on FD and RD on maturity, instead of each Financial Year. But, once opted (when to pay the taxes) we need to stick to the same method. (Actually in accounting terms these are known as ‘Mercantile’ or ‘Cash’ accounting methods).

          The interest income from a NCD and tax treatment is exactly similar to any other interest income such as interest income from FDs. In other words, interest income from NCDs will be subjected to tax at normal rates by including it in ‘Income from other sources’.

          If you decide to sell the NCDs on the stock exchange, capital gains can also arise. If NCDs are sold with in a period of 12 months from the date of allotment, short term capital gains / loss (STCG) will arise and if you decide to sell NCDs after a period of 12 months, the resulting gain or loss is called long term capital gains / loss (LTCG).

          While short term capital gains on sale of NCDs would be taxed at normal rates, long term capital gains on sale of NCD (a listed security) are taxed at concessional rates u/s 112 of IT Act.

          Long term capital gains on listed securities are taxed at the rate of 10% without indexation or 20% with indexation whichever is lower. However, as the benefit of cost indexation is not available in case of bonds and debentures; therefore, long term capital gains from NCDs are always taxable @ 10.30 per cent (including education cess of 3%) without indexation.

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