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Home >Money >Personal Finance >Muthoot’s new NCDs offer 6.6-8.25% yield

Gold loan non-banking financial company (NBFC) Muthoot Finance Ltd on Thursday launched its 25th issue of secured public non-convertible debentures (NCDs) with an aim to raise up to 1,700 crore. The NCD, which has been rated AA+ by rating agencies, is offering an effective yield in the range of 6.60% to 8.25% per annum.

The NCD has a base issue size of 100 crore with an option to retain oversubscription of up to 1,600 crore.

The secured NCDs have been rated AA+ with a stable outlook by rating agencies Crisil Ltd and ICRA Ltd. These ratings mean that the debentures carry low credit risk but are not as safe as AAA-rated instruments.

There are eight investment options with monthly or annual interest payment frequency or on maturity redemption payments.

Investors can lock in money for a period of 26, 38, 60 and 120 months in these secured NCDs, which are proposed to be listed on the BSE. Investors should note that secured NCDs don’t mean they are completely risk-free.

“In this issue, investors get the twin advantage of better rating as well as an attractive interest rate. We have also introduced a 10-year NCD for those investors who want to lock in the interest rates for a longer period," said George Alexander Muthoot, managing director, Muthoot Finance.

The company has raised around 17,392.20 crore via 24 public NCD issues since 2011.

The Muthoot Finance NCD, which will close on 29 April, has a face value of 1,000 with a minimum application size of 10,000, and in multiples of one NCD thereafter.

Generally, investment advisers suggest retail investors to stay away from NCD issues. “It goes without saying that a higher interest rate means higher risk. Only those individuals who can take higher risk within the debt category should go with NCDs. Muthoot Finance’s outlook is mainly dependent on one industry (gold loans); hence, AA+ rating is not a good bet for a small retail investor. However, a big investor can think of a small portion within the debt portfolio, provided he or she is ready to take the risk," said Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners.

According to Joseph, investors should remember that there is a risk of defaults happening for gold loans if prices correct in a big way.

“But the chances are quite remote," he added.

Over the past six months, prices of gold have corrected over 20% from around 55,000-56,000 to near the 43,000 level. However, with the recent surge in covid, the outlook has turned bullish.

“The pace of vaccination, reopening of economies and the better-than-expected macro numbers have all been priced in, which led to the fall in gold prices. The second wave has started in India. Inflation could also be another key factor. Gold prices are likely to head upwards from here on. We have a target of 50,500 for the next 12 months and 56,000 for the next 18 months and possibly a new lifetime high," said Navneet Damani, vice president and head of research, commodities & currency, Motilal Oswal Financial Services Ltd.

Note that redeeming NCDs before maturity might be a challenge as the Indian debt market is not that deep.

Also, the interest earned on these instruments is taxed at your income tax slab rate.

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