The interest rates on Bank fixed deposits have been on the downward slope 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.
Almost all the recent and latest NCD Public Issues have been fully subscribed from all category of investors within 1 – 3 days of the subscription period itself.
The most recent NCD issue by Muthoot Finance (April 2017) has been fully subscribed within couple of days from the date of issue opening in April, 2017. The latest NCD issue which is currently open for subscription is ‘Mahindra Finance’s NCD July 2017 Issue’.
SREI Equipment Finance Ltd is also proposing to offer latest NCD issue. SEFL is going to offer un-secured, subordinated, redeemable NCDs. The proposed public issue will be open for subscription from 17th July, 2017 to 31st July, 2017. (SREI Equipment Finance Ltd is a wholly owned subsidiary of SREI Infra Ltd)
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.
SREI EFL’s latest NCD issue offers non-convertible debentures in the form of Un-Secured NCDs. Below is a short video on ‘basics of NCDs’.
SREI Equipment Finance NCD July 2017 Public Issue Details
SREI EFL is a non-banking finance company with a principal focus on financing Infrastructure equipment. It provides financial products & services to companies operating in the construction, mining, ports, railways, healthcare, oil & gas etc., sectors.
Below are the few important details about SREI EFL’s upcoming July 2017 NCD Issue (in FY 2017-18) ;
- NCD Issue opening Date : 17th July, 2017
- Issue Closes on : 31st July, 2017.
- Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.25% to 9.55 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 up to Rs 500 Crores, aggregating up to Rs 1,000 crores.)
- Mode of Issue : Most of the options (NCD Series) are issued in Demat form only.
- Face Value or Issue Price of one NCD is Rs 1,000.
- Available Tenor options : 5 years & 3 months / 7 years / 10 years.
- Frequency of Interest payment : Annual / Monthly. Cumulative option is 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 not create or maintain appropriate security in favour of the Debenture Trustee for the NCD Holders, as this issue is for un-secured NCDs.
- Credit Ratings : ‘BWR AA+ Outlook Stable’ by Brickwork Ratings and ‘SMERA AA+/Stable’ by SMERA.
- Issue Allocation Ratio : 50% of the issue is for retail & HNI individual investors (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 served’ basis.
- NRIs are not eligible to apply to this NCD issue.
SREI Equipment Finance – Latest NCD Issue – Options & Rate of Interest
Should you invest in SREI Equipment Finance NCD July 2017 Issue?
The NCDs offered in this issue are Un-secured & Subordinated NCDs.
What are unsecured subordinated NCDs? – Unsecured subordinated debt securities (here, NCDs) are the ones which rank after other debts if a company falls into liquidation or bankruptcy. So, in the event of any liquidation, unsecured NCDs are prioritized lower than other classes of debt for honoring the claims.
Kindly note that NCDs are not totally risk-free. These carry higher risk than bank deposits. 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.
Generally, the interest rates offered on Unsecured NCDs are higher than the rates offered on Secured ones. If we compare the coupon rates offered by Mahindra Finance on their Un-secured NCDs (July 2017 Issue) Vs SREI Equipment Finance’s Un-secured NCDs (July 2017 issue), the interest rates and terms are attractive.
However, I believe that investing in subordinated and un-secured NCDs for long-term (like 5 to 10 years) may not be advisable. I believe that you may ignore subscribing to this issue.
You may consider other alternative fixed income avenues like Post office MIS scheme, Post office Senior Citizen Savings Scheme, 8% GoI Bonds etc.,
Have you invested in any of the recent Public Issues of NCDs? Do you prefer NCDs to Bank FDs? Kindly share your views. Cheers!
Continue reading : ‘What are NCDs? How to buy best NCD? Tax Implications on NCDs‘
(Post published on : 12-July-2017) (This article is based on limited available information, if required, the content will be edited.)
What is the allotment status?
Dear Himani ..You may check the allotment status at this link…click here
Beautifully written Mr. Sreekanth Reddy, I wanted to invest in these, until I read your post! So very well written and how well stated at the end. Now I will be very careful. Thank you.
I like the way Sreekanth writes, simple and clear. I too feel these unsecured NCDs are a risk.
Thank you dear Nithya. Keep visiting ReLakhs!
Dear Mr. Sreekanth: Could you please advise me on the following: Premium paid on maturity of PO MIS (last it was 5%, now it is perhaps withdrawn), is to be offered for income tax as capital gain with indexation (20% with indexation) or as interest or other income at applicable slab rate of income tax?
Dear Mr Bhat,
Are you referring to interest income received on PO MIS?
Both Interest and Bonus (if any) received is taxable under the head Income from Other sources, chargeable at individual’s income tax slab rate.
Dear Sir, I don’t have Demat account. How can I invest? How’ll I get interest? Yearly payment to my bank, or after maturity INT+AMT? And how’ll tax be deducted, as TDS or I’ve to calculate and pay advance tax?
Dear Raj,
Most of the options in this issue are issued in Demat form only.
If you opt for interest payable (monthly/annually) which is a non-cumulative option, you get interest payment to your bank account.
If you opt for ‘Cumulative’ option then you get back Principal + total interest amount at the time of maturity (NCD redemption date).
Dear Sir, you said ‘most of the option’ available in demat only. Any option open for physical form as of now? From where can I purchase it?
BTW, I’m also considering opening demat+trading a/c, and confused between Angel and Zerodha. Angel representative told me opening a/c with 1lakh at beginning make it AMC free for 3yr and I can bank transfer 1lakh after 15days. With Zerodha I’m worried as they don’t any office, if they can fly away with my money.
Whats your say sir? Do you prefer any other broker?
I may not be able to tell you about the physical option part but regarding zerodha, it has been in operation for a few years and have been a user since about a year or more. They have enough online and offline presence and have collection offices at many places. Personally, I have had a very good experience with regards to resolution of issues/queries and other value added services. Since they are registered and compliant, i dont think they can run away with your money.
Hope my limited knowledge helps you in your decision 🙂
Dear Raj,
I believe that 5 year NCD with Annual interest payment and 10 year NCD with monthly/annual payment are available in physical mode.
I believe that both are good service providers.
Whether you invest in Stocks or mutual funds, your money gets invested in the securities and not in these companies. Your amount is held in your bank account which can be linked to demat/trading account.
As soon as you invest amount, you generally get Statements from third party companies like NSDL/respective fund houses/RTAs like CAMS etc.,
Dear Sir, thanks for you reply. How can I invest in 5y/10yr in physical form? Which office to visit? I think for offline, I need to fill application form and provide cheque of purchase amount. Please provide some light on this.
Dear Raj ..You can find the required details at this link…click here..
You can try Fundsindia ,Many other who wants to invest without getting into demat account and its annual fee can try fundsindia
i am expecting from Sreekanth to write a article regarding online investment platform available in market
You are right, Sreekanth ! Unsecured as it is, it is offering better interest rate; but 5-7 years look like a long wait !!!