The interest rates on Bank fixed deposits may have touched the lowest levels (showing some 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.
TATA CAPITAL FINANCIAL SERVICES Ltd is proposing to offer latest NCD issue. TATA Capital is going to offer Secured, Unsecured and redeemable NCDs. The proposed public issue will be open for subscription from 10th September, 2018 to 21st September, 2018.
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 Sep 2018 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 September 2018 NCD issue (FY 2018-19) ;
- NCD Issue opening Date : 10th Sep, 2018
- Issue Closes on : 21st Sep, 2018.
- Interest Rate or Coupon Rate on NCDs : The ROI ranges from 8.70% to 9.10% depending on the category of investor and tenure of the NCDs.
- Issue Size : Base Issue size is Rs 2,000 cr (Public issue of Secured NCDs up to Rs.6,000 crore and Unsecured NCDs up to Rs.1,500 crore, aggregating up to Rs.7,500 crore ).
- Mode of Issue : Demat
- Face Value or Issue Price of one NCD is Rs 1,000.
- Available Tenor options : 3 years to 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 : 30% of the Issue is for retail investors & 30% for HNIs (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.
Rate of Interest on latest NCD Issue by TATA Capital Finance
Should you invest in TATA Capital Finance’s latest NCD (Sep 2018) 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). Considering this scenario, if you are looking for regular interest income and are in 10% or 20% income tax slab rate, you may consider investing in up to three year (cumulative/non-cumulative) Secured NCDs. Kindly avoid investing in Un-secured and longer tenure (10 years) NCD series.
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, Post office Senior Citizen Savings Scheme, 7.75% GoI Bonds etc.,
Have you invested in any of the recent Public Issues of NCDs (Shriram Transport Fin / JM Financial / DHFL)? 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
- List of Best Investment Options
- 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)
(Featured Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net) (Post first published on : 01-Sep-2018) (This article is based on limited available information, if required, the content will be edited.)
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What is the allotment date and listing date?
Dear Mr Jain,
Allotment date is – the date when the NCD bonds are allotted to the investor.
Listing date is – the date when the NCDs gets listed on Stock Exchanges.
The NCDs shall be listed within 12 Working Days from the date of the Issue Closure.
Sorry its shree
Thank you dear Aavez ..Keep visiting ReLakhs.com .
Good info sheet, thanks
Hi Sreekant,
Thanks for all of your help. Just wanted to confirm if we can sell these NCD before maturity and if yes, how can we do that?
Yes, you can sell them in the secondary market. However, please note that in a rising interest rate scenario the price of fixed income products tends to go down.
Dear sameer,
Yes, you can buy/sell through Stock exchanges.
Generally, these NCDs get listed within 2 weeks on stock exchanges.
However, the Face value may vary.
DEAR REDDY,
WHICH NCD IS BETTER OUT OF FOUR NCED WHICH WILL BE COMMING IN FUTURE, LOKE TATA CAPITAL, INDIA BULLS, ADHAR HOUSING, ONE MORE.
PL GIVE YOUR OPENION.
RAGRDS
Dear Shantilal,
It depends on how conservative or aggressive one is..
If one is very conservative and looking for regular annual income then TATA Capital Fin NCD issue can be a better choice.
Very Good Advice Cautionary in Nature & Knowledge enhancing
Thank DATTATREYA .. Keep visiting ReLakhs.com !
Dear Sreekanth,
Can I invest through Net Banking having ASBA for IPO.
Kamalakar
Dear Kamalakar ji,
Demat Account is mandatory for subscribing to this issue.
i have demat account.
Dear Kamalakar ji,
I believe you can make the investments. Kindly check with your banker.
I invest in IPO thorough ICICI Bank or BOB. I called them but they were not sure of providing asba through net banking for NCDs.
I called Tata Capital Financial Services and they sent a person to my home to get the application form filled. I paid through cheque which got cleared today. Banks may not be providing the facility through Net Banking since NCDs are direct competition for FDs and moreover there is no TDS which makes them more attractive. Yes I know that the interest is taxable.
Dear Kamalakar ji,
Thanks for sharing this info!
As per the Prospectus, ASBA Applications can be submitted ;
(i) to the Consortium only at the Syndicate ASBA Application Locations; or
(ii) to the Designated Branches of the SCSBs (Self Certified Syndicate Bank) where the ASBA Account is maintained; or
(iii) to Trading Members only at the Syndicate ASBA Application Locations.
Hi Srikanth,
I have savings of around Rupees 7lacs. My daughter is studying in UKG now. Planning to use this money for paying every year school fees/van expenses for 10years(around 1lac / year). pls let me know how effectively this capital can be invested and used.
For higher studies / Marriage expenses, invested in a site, this is fyi.
Your valuable suggestions will be highly appreciated.
thanks / regards
Mahesh Prasad
Dear Mahesh,
May I know if you have / maintain a separate Emergency Fund to meet other living / periodic expenses?
Related article : What is an Emergency Fund? | Why, Where & How much to save?
Hi Srikanth,
I have kept 50k for emergency. as per the article, may require another 1lac as emergency fund. What shall I do with the rest of the money?
thanks
Dear mahesh,
The remaining corpus can be invested in saving/investment avenues like Fixed Deposit, Liquid Debt Fund, Secured NCD (non-cumulative, term : 3 to 5 years) etc.,
thank you Srikanth for the reply…
Hi Sreekanth,
I follow your blogs regularly and it has really helped me in doing better financial planning.
You have mentioned PO MIS scheme above. Could you please suggest if MIS would be lucrative if TDS deduction starts after their Payment bank creation….
Regards,
Deep
Dear Deep,
Thank you for following my blog!
Kindly note that interest income earned on MIS deposit is a taxable income. So, whether TDS is deducted or not, one has to include it in his/her Tax Return.
Related article : Misconceptions on TDS (Tax Deducted at Source)
Thanks a lot Sreekanth…
Would PO MIS start deducting TDS after Payment bank creation.
This is in my major son’s name whose income is below taxable limits…but still they would deduct TDS?
Regards,
Deep
Dear Deep ji,
As of now, TDS is not deducted on MIS.
But it is a taxable income.
Very good information
Creating awareness among people
Good initiative
Best of luck
Thank you dear Amit..Keep visiting ReLakhs.com !
VERY GOOD AND VALUABLE INFORMATION FOR NEW INVESTOR.NCDs BASIC EXPLAINED VERY WELL.
Thank you dear Ayush..!
Interest will be compounded in what basis? How much annual interest amount one will get for one NCD of 3 year tenure?
Dear Rohit,
In this Issue, there is no option for Cumulative Payment on maturity hence no COMPOUNDING takes place.
The interest income is payable on annual basis.
If your investment is say Rs 1 Lakh for 3 year tenure then interest of Rs 8,800 is paid on annually for three years. Kindly note that interest income earned on NCDs is a taxable income.
Very good information, thanks.
Thank you dear Jitendra .. Keep visiting ReLakhs.com !