Reliance Home Finance NCDs : Latest Public Issue Details & Features

Reliance Home Finance NCDs _ Latest Public Issue Details

The interest rates on Bank fixed deposits have been on the downward slope and the interest rates on popular small savings schemes like Senior Citizen Savings Scheme, Post office MIS etc., are not very attractive. Also, Tax Free Bond Issues are not available. 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.

Almost all the recent and latest NCD Public Issues have been fully subscribed from all category of investors on day one of the subscription period itself. Many companies like Mahindra & Mahindra Fin Services, Edelweiss, Dewan Housing Finance, SREI infra, India Bulls Housing Finance etc., have raised funds by issuing NCDs in FY 2016-17.

Adding to the list is Reliance Home Finance NCDs. Reliance HFL is now proposing to issue both Secured & Non-secured redeemable NCDs. The proposed public issue will be open for subscription from 22nd December, 2016 to 6th January, 2017. (Reliance Home Finance Ltd is a wholly owned subsidiary of Reliance Capital Limited.)

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.

Reliance HFL’s latest NCD issue offers non-convertible debentures in the form of both Secured & non-Secured NCDs.

Reliance Home Finance NCDs – Issue Details & Features

Below are the few important details about Reliance HFL’s Dec 2016 NCD Issue;

  • NCD Issue opening Date : 22nd December, 2016
  • Issue Closes on : 6th January, 2017.
  • Interest Rate or Coupon Rate on NCDs : The ROI ranges from 8.70% to 9.40% depending on the category of investor and tenure of the NCDs.
  • Issue Size: Base Issue size is Rs 1,000 cr (with an Option to retain over-subscription amount up to Rs 3,000 Crores for Secured NCDs and upto Rs 500 Crores for Un-Secured NCDs aggregating upto Rs 3,500 Crores.)
  • Mode of Issue : Physical & Demat forms
  • Face Value or Issue Price of one NCD is Rs 1,000
  • 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 100% asset cover for the Secured NCDs. No security will be created for Un-Secured NCDs.
  • Credit Ratings : Rating of ‘CARE AA+’ by CARE and ‘BWR AA+’ Outlook: Stable by Brickwork for Secured NCDs  and rating of ‘CARE AA’ by CARE and ‘BWR AA’ Outlook: Stable by Brickwork for Unsecured NCDs.
  • Issue Allocation Ratio : 30% of the issue is for retail individual investors & 30% for High Net-worth Individuals (applying for an amount of > Rs 10 lakh).
  • NRIs are not eligible to apply for this issue.
  • There is no PUT option available for Secured NCDs / Un-secured NCDs.
  • Call option is not available for Secured NCDs. In case of Unsecured NCDs, Call option is available and can be exercised by the company after 10 years of from the date of allotment. If call option is not exercised, a step up of 25 basis points above coupon rate will be given.
    • (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.)

Rate of Interest on Reliance Home Finance NCDs

Rate of interest coupon rate interest rate on reliance home finance ncds debentures bonds dec 2016 jan 2017 reliance capital ncd

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 10% without indexation is applicable.

Should you invest in Reliance HFL NCDs?

We all are aware that interest rates on fixed income securities are moving downwards. Considering the downtrend, if you are looking for regular interest income (I think Cumulative option is not available in this issue) and are in 10% or 20% income tax slab rate, you may consider investing in 3 year / 5 year period Secured NCDs. It is advisable to avoid investing in un-secured NCDs.

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.

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.

Have you invested in any of the recent Public Issues of NCDs? Do you prefer NCDs to Bank FDs? Kindly share your views and comments.

(Featured Image courtesy of Vichaya Kiatying-Angsulee at (Post published on 19-December-2016)

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  • Sanket Shirodkar says:

    How much is the maturity period ?

  • Informative post as always

  • Ganesan says:

    Based on credit rating, it is god to invest in these NCD’s. Reliance is known name and the sector they are going in is related to home finance which is expected to pick up in the coming years. AT present scenario, returns of 8.9% for 3 years is good.
    Only risk factor as said is default risk.

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