The Reserve Bank of India (RBI) on April 4, 2019 has recently released its first bi-monthly rate review of financial year 2019-20. The key announcement under the policy is the rate cut by 25 basis points (1 bps is 0.01%).
In view of the above, most of the banks and corporates may reduce the interest rates on their deposits schemes, Bonds, NCD Public Issues etc.,
This may induce 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 21,000 crore were launched during last 120 days to raise money to meet credit demand. The recent NCD Issues were offered by L&T Finance, Muthoot Finance, Indiabulls Consumer Finance, Manappuram Finance, India Infoline, TATA Capital, 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 30th May, 2019 to 21st June, 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 May-June 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.
The company focuses primarily on providing personal loans, business loans (unsecured SME loans and secured SME loans) and other loans. ICFL’s AUM as per Ind AS was Rs 4,017.53 crore as at March 31, 2018, and its AUM as per IND AS was Rs 11,227.73 crore as at March 31, 2019, resulting in increase by 179%.
As at March 31, 2019, ICFL’s gross NPAs as a percentage of its AUM as per Ind AS was 0.75%, and its net NPAs as a percentage of its AUM as per Ind AS was 0.24%. As of March 31, 2019, 2018 and 2017, its capital to risk (weighted) assets ratio was 37.7%, 33.52% and 90.03% respectively.
ICFL’s revenue from operations increased by 152% from Rs. 654.09 crores under Ind AS in Fiscal 2018 to Rs. 1,648.06 crores under Ind AS in Fiscal 2019. Profit after tax increased by 135% from Rs. 170.03 crores in Fiscal 2018 to Rs. 400.19 crores in the Fiscal 2019. The Company’s revenue from operations and profit after tax grew at a compound annual growth rate (“CAGR”) of 436.88% and 673.2%, respectively, from Fiscal 2017 to Fiscal 2019.
Below are the few important details about upcoming Indiabulls Consumer Finance NCD June 2019 (FY 2019-20) ;
- NCD Issue opening Date : 30th May, 2019
- Issue Closes on : 21st June, 2019.
- Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.95% to 10.60% depending on the category of investor and tenure of the NCDs.
- Issue Size : Base Issue size is Rs 100 cr (with an option to retain over-subscription amount of up to Rs 900 cr for Tranche-II.)
- Mode of Issue : Demat only
- Face Value or Issue Price of one NCD is Rs 1,000.
- Available Tenor options : 400 days & 24 / 36 / 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 May-June 2019 Issue – Coupon Rates
The company shall allocate and allot Series V NCDs (36 Months – Annual interest payout option) wherein the applicants have not indicated their choice of the relevant NCD series.
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 have shown some signs of up-trend (but remained stable due to the RBI’s repo rate-cut), 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 (DHFL / IL&FS Saga) may also have a deeper impact on NBFCs businesses in the near future.
Just a couple of months back Indiabulls Commercial Credit had come up with its NCD Isssue in Feb 2019. The interest rates offered were around 10.5 to 11%. Though the RBI has cut repo rate, you can notice that Indiabulls commercial Fin is still offering rates of around 10%, which are slightly higher than the most recently concluded NCD Issues. 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 400 days / 24 month NCD Series. (If you are in the highest tax slab, you may also consider investing in Tax Free Bonds from Secondary Market.)
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. But, do not invest your entire investible surplus in one Company’s NCD Issue.
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, Tax Free Bonds, 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 (Indiabulls Consumer Fin NCD Feb 2019 / India Infoline Jan 2019 NCD Issue / Mahindra Finance (Jan 2019 Issue) / Manappuram Finance / Shriram Transport Finance / TATA 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!
Continue reading :
- What are NCDs? How to buy best NCD? Tax Implications on NCDs
- Snapshot of the most Popular Investment options in India, all in one place!
- 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)
(Post first published on : 29-May-2019) (This article is based on limited available information, if required, the content will be edited.)
My company provides me Rs2000 daily allowance for official tours. And for local conveyance we get around 500-1000rs per day for auto/taxi etc. After tour completion, we raise claim and get reimbursement. Is this amount taxable? If so, how and where to show this amount in IT-return ?
Also I used to fill ITR1, but last FY, I’ve done some short, and intraday trades, total less than 10000rs. both ended in loss. Which ITR file should I file this year, and where to show them ?
Dear Gobind,
As per Section 10(14)(i) of the Income-tax Act, 1961 (Act), any allowance or benefit granted to the employees to meet expenses wholly, necessarily and exclusively towards performance of official duties (normally referred to as per diems) are exempt from tax, provided such an expense is actually incurred by an employee and submits the actual bills.
You may go through this link..
With effective from FY 2018-19, a standard deduction of Rs 40,000 in lieu of travel and medical allowances has been proposed for salaried employees and pensioners. Kindly check with your employer if your local conveyance is part of this Rs 40k or in addition..
If you have incurred speculative income (loss) you have to file ITR-3 form. Kindly consult a CA.
Read : AY 2019-20 Income Tax Return Filing | Which ITR Form should you file?
Please advice for case, when bill not available against daily allowance, which happens many times when travelling to small cities. Also many times full 2000 amount is not consumed. Say I get 30k for 10 day tour as claim on my bank account, how to show this amount in ITR.
Kindly advice on how to show this intraday trading in ITR for this year, as business or as investor. As my future plans to short term trading with buy and sell shares usually 50000rs per lot, weekly 1-2 trades.
Dear Gobind,
I believe that exemption is based on actual bills only.
Regarding ITR filing, suggest you to kindly consult a CA.
You may kindly go through this (moneycontrol.com’s) article as well : Is transport allowance paid to employees fully taxable?