The Reserve Bank of India (RBI) has today (7/Aug/2019) released its third bi-monthly rate review of financial year 2019-20. The key announcement under the policy is the rate cut by 35 basis points (1 bps is 0.01%). This is the fourth consecutive rate cut from RBI , after a rate cut in February, April and June of calendar year 2019.
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. But, don’t forget this rule of thumb – “the higher the risk, the higher the potential return.”
Fixed income investors were spoilt for choice with four public issues of non-convertible debentures (NCDs) worth around Rs 25,000 crore were launched in the recent past 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.,
TATA CAPITAL FINANCIAL SERVICES Ltd is proposing to offer latest NCD issue. It is going to offer Secured, un-secured and redeemable NCDs. The proposed public issue of these Bonds will be open for subscription from 13 th August, 2019 to 23rd August, 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’.
TATA Capital Finance NCDs Aug 2019 Public Issue – Key Features
TATA Capital Finance is a non-banking finance company and is a part of the TATA group of companies. TCFSL is promoted by and is wholly owned subsidiary of Tata Capital Limited (TCL). TCL is a diversified financial services company providing services.
TCFSL’s financing products include Corporate Finance and Consumer Finance. The corporate finance division offers commercial finance which offers vanilla term loans, working capital term loans, channel finance, bill discounting, construction equipment finance, leasing solutions, lease rental discounting, promoter finance and structured products. The consumer finance and advisory business division offers a wide range of consumer loans such as car and two wheeler loans, commercial vehicle loans, tractor loans, business loans, loans against property, personal loans, consumer durable loans and loans against securities.
Below are the few important details about upcoming TATA Capital Finance August 2018 NCD issue (FY 2019-20) ;
- NCD Issue opening Date : 13th Aug, 2019
- Issue Closes on : 23rd Aug, 2019
- Interest Rate or Coupon Rate on NCDs : The ROI ranges from 8.45% to 8.85% 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 oversubscription of Secured & Unsecured NCDs of up to Rs. 4,126 crore).
- Mode of Issue : Demat
- Face Value or Issue Price of one NCD is Rs 1,000.
- Available Tenor options : 3 / 5 / 8 / 10 years
- Frequency of Interest payment : Annual. Cumulative option is not 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. No security will be created for Unsecured NCDs.
- Credit Ratings : Credit Rating of”CRISIL AAA / Stable” for an amount of Rs 7,500 Crore, by CRISIL Limited and “CARE AAA; Stable” for an amount of Rs 7,500 Crore, by CARE Ratings Limited .
- Issue Allocation Ratio : 35% of the Issue is for retail investors & 35% for HNIs (HNIs – individuals (applying for an amount of > Rs 10 lakh).
- PUT & Call options : No. 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 served’ basis.
- NRIs are not eligible to apply to this NCD issue.
Rate of Interest on latest NCD Issue by TATA Capital Financial Services Aug 2019
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.
- Listed Debentures : Holding period 1+ year to qualify as LTCG. LTCG tax rate @ of 10% without indexation & STCG tax rate is as per ‘income tax slab rate’.
- Unlisted Debentures : Holding period of 3 year to qualify as LTCG. STCG is taxed @ as per income tax slab rate. LTCG of 20% without indexation.
Should you invest in TATA Capital Finance NCDs Aug 2019?
As we all are aware that interest rates on fixed income securities have already reached their lowest levels. With the recent rate cut announced by the RBI, we may witness further decline of bank deposit and Small Saving Schemes rates.
Hence, the interest rates offered on Secured NCDs look attractive when compared to other fixed income products like bank deposits or small saving schemes.
The current interest rates offered by on-going NCDs issues of Shriram Transport, Indiabulls and JM Financials offer in the range of 9.5 to 10.5%. Whereas, the interest rates on bank deposits are hovering around 7% to 7.5% for 3 year term deposits.
TATA Captial NCDs offer interest rates of 8.45% on 3 year NCD series. Given the interest rate outlook, good-will enjoyed by the TATA group and highest credit rating for this issue, you may consider investing in 3 year NCD series of this issue. Do not invest in unsecured and sub-ordinated 10 year NCD series.
Around same time last year, TATA Capital had come up with an NCD issue. It had then offered interest rates in the range of 8.70% to 9.10%. But, the interest rates have been on the downward trend, so it is now offering slightly lower rates comparatively.
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 }
Also, kindly understand the risks associated with NCDs and then take informed decision.
Continue reading :
- Best Company Fixed Deposits 2019-20 | Should you Invest?
- 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?
(Post published on : 07-Aug-2019)
Really enjoyed this article.
Thanks for sharing such a great information, it is very useful, keep posting
This part that ”Credit Rating of”CRISIL AAA / Stable” for an amount of Rs 7,500 Crore, by CRISIL Limited and “CARE AAA; Stable” for an amount of Rs 7,500 Crore, by CARE Ratings Limited .” is WRONG, as this Tata NCD Issue is just up to Rs. 4,126 crore (maximum)
Dear Pinaki,
Below is the info taken out of the Issue Shelf Prospectus ;
The NCDs proposed to be issued under this Issue have been rated “CRISIL AAA / Stable” for an amount of up to ` 7,50,000 lakh by CRISIL Limited vide its letter dated August 15, 2018 and further
revalidated by letter dated August 27, 2018 and have been rated “CARE AAA; Stable” for an amount up to ` 7,50,000 lakh by CARE Ratings Limited vide its letter dated August 14, 2018 and further
revalidated by letter dated August 27, 2018. The ratings of the NCDs issued by CRISIL Limited indicate highest degree of safety regarding timely servicing of financial obligations. The rating provided
by CRISIL Limited and CARE Ratings Limited may be suspended, withdrawn or revised at any time by the assigning rating agencies and should be evaluated independently of any other rating. These
ratings are not a recommendation to buy, sell or hold securities and investors should take their own decisions.
Hello Sreekanth, Can you please guide how to invest in this.
Dear Jagan,
Tata Capital Finance NCD Issue is available in only in demat form. You can apply online or through any of the broker website where you are maintaining a demat account. Tata Capital Finance NCD application form can be downloaded from book running lead managers website too.
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