L&T Finance will be selling its Non-Convertible Debentures (Secured NCDs) to investors including retail from December 16 onwards and closes on December 30. The company has come up with attractive interest rates between 8.45% and 8.65% for retail investors.

The face value of each debenture is 1,000, and the minimum application amount is 10,000. The lowest tenure of the NCD is 36 months where a retail investor will receive 8.45% interest. For 60-month tenure, the interest rates is 8.6%, and for 84 months, L&T Finance is offering 8.65%. These rates are for investors seeking annual payouts. The rates are slightly lower for those seeking monthly payout options.

The interest rates are attractive when compared to what banks are offering on their fixed deposits. For instance ICICI Bank is offering fixed deposits (FDs) at 6.40% for the same tenure, and State Bank of India’s FD rate is at 6.25%. The rate on India Post’s fixed deposit for three years is 6.9%, and for five years, it is at 7.7%.

For a retail depositor, the rates from L&T Finance are close to what some small finance banks offer. Jana Small Finance Bank offers 8.4% interest on its three-year FD, according to the bank’s website. While the interest rate for a three-year FD from Utkarsh Small Finance Bank is 8%. Similarly, Suryoday Small Finance Bank offers FD at 8.5% for tenure above two years but up to three years.

There are similar attractive rates available for the long term from small finance banks. Suryoday Small Finance Bank offer FD at 9% if the depositor chooses the five-year tenure. Fincare Small Finance Bank has 9% rates for FDs between 24 months and 36 months.

In terms of the credit risk L&T Finance comes with a strong pedigree and has triple-A or AAA rating from multiple credit rating agencies, in comparison one should know that deposits up to are 1 lakh are insured in banks.

In the current environment, where companies such as Reliance Capital has delayed payment towards interest/principal on its NCD due to 9 December 2019, financial planners suggest the best option is to diversify your fixed-rate instruments keeping your tax bracket in mind. Invest only a small portion in any NCD issue even though the company financials are strong.

The interest from fixed-rate instruments is taxed at marginal rates. “Those in 10% and 20% tax bracket can put up to 1 lakh in different small finance banks and then look at investing a small portion in NCD issues from companies with a strong parentage and financials like L&T Finance," says Deepesh Raghaw, SEBI registered Investment Adviser based in Mumbai. But if you are in the 30% tax bracket, it’s better to opt for debt funds with limited exposure to fixed-rate instruments. If an individual withdraws investment after three years from a debt fund, she is taxed at 20% after indexation. Indexation lowers the tax outgo significantly. Whereas in case of NCDs and fixed deposits the interest is taxed as per marginal rate.


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