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Muthoot FinCorp NCD is being offered in tenors ranging from 27 months to 60 months and is rated ‘A’ by CRISIL

Muthoot FinCorp Ltd launched a non-convertible debenture (NCD) issue, offering yields up to 9.62% for a five-year tenor, on Monday. You can opt for monthly, annual, or cumulative interest payment options.

The issue which opened on 28^th September 2020 will remain open till 23^rd October 2020. The NCD is being offered in tenors ranging from 27 months to 60 months and is rated “A” by CRISIL. The issue size is ₹200 crore, with the company retaining the right to keep an additional ₹200 crore from the proceeds.

About Muthoot FinCorp

Muthoot FinCorp Ltd. is part of the Muthoot Pachappan Group alternatively known as Muthoot Blue and should not be confused with Muthoot Finance, a listed entity that is part of a separate corporate group that has a legacy of 133+ years and over 4,200 branches across the country.

Muthoot FinCorp on a standalone basis had a net worth of ₹3,006 crore and assets under management of ₹14,359 crores, as of 31 December 2019, according to a CRISIL rating note issued in May 2020.

Muthoot FinCorp is a non-banking finance company (NBFC) engaged in loans against gold. It also has a substantial non-gold lending business such as microfinance and vehicle finance at more than 40% of the portfolio, as of 31 December 2019, according to the note. Gross non-performing assets (NPAs) were at 2.5%, as of 31 December 2019, it added.

“Muthoot FinCorp has issued six NCD public issues aggregating to ₹1,940 crores in the last six years and mobilized ₹1,639.81 crores. The company has promptly redeemed maturing NCDs and serviced interest at all times,” said company Chairman Thomas John Muthoot an an emailed response to Mint

Muthoot Fincorp NCD Sept 2020 Structure and Details are as follows:

Download Muthoot FinCorp NCD Prospectus

What are the Credit Ratings for These NCDs?

Experts have taken a cautious view of the NCD due to its A rating (rather than AA or AAA). “At a time when default-related issues have been a concern and economic situation remains uncertain, investing in Muthoot, which has a Crisil A rating, is only for those who have a high-risk appetite. Investors should not subscribe to it by only looking at the attractive interest rates, and they must be sure to factor in the element of high risk while taking a decision. Overall, unnecessary risk on the fixed-income side of the portfolio should be avoided,” said Praveen Bajpai, founder, FinFix, a financial research and wealth management firm.

Anand K. Rathi, founder partner, Augment Capital Advisors LLP, highlighted that the company’s non-gold exposure is a concern. “Those who really want to invest should stick to the smallest tenor of 27 months and choose the monthly interest option,” he said.

How the Returns from These NCD Bonds are Taxed?

Interest on NCDs is taxed at your income tax slab rate. Hence, investors, particularly those in the highest tax bracket, should consider the post-tax yield on such NCDs. For example, the 27-month NCD offers a pre-tax interest rate of 8.85%. Post-tax, this is likely to fall to 6.19% for someone who is in the 30% tax bracket.

How to Subscribe to These Bonds?

This issue is available only in Demat form. You can apply online by logging into your Demat account. Application forms can be downloaded on the lead manager website. For more information refer to the prospectus.

Should You Invest in Muthoot FinCorp NCD in 2020?

Always diversify your portfolio by investing in multiple investment plans and don’t put your hard-earned money in a single NCD bond or fixed deposit or in 1 equity mutual fund. If you have a high-risk appetite and are willing to consider all the risks indicated above, you can invest in these NCDs. I would re-iterate again, that these are high risk, hence invest only a small portion in such investment options if you still want to proceed.

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