Fixed Income Archives

India Grid NCDs offering upto 8.20% return open for subscriptionon on April 29

India Grid Trust has come up with a non-convertible debentures (NCDs) issue offering a coupon rate in the range of 6.65-8.20% for an investment horizon of three to ten years.
The NCD issue is rated AAA by Crisil and India Rating. A stable business, established institutional investors as promoters, high credit rating and higher interest rate compared to other AAA rated investment options make IndiGrid NCD an attractive long term debt investment option. Read on to know more.
What about NCD issuer
IndiGrid was set up on October 21, 2016, as an irrevocable trust pursuant to the trust deed under the provisions of the Indian Trusts Act, 1882, and was registered with Sebi as an InvIT on November 28, 2016, under Regulation 3(1) of the InvIT Regulations.
IndiGrid was originally sponsored by Sterlite Power Grid Ventures Ltd while later KKR, a leading private equity fund, was inducted as the co-sponsor of the trust.
India Grid Trust (IndiGrid) is the countryâ€™s first listed power sector infrastructure investment trust.

What about NCD offering
The Rs 1,000-crore NCD issue of India Grid Trust opens on April 28 and closes on May 7.
The NCDs rated the highest AAA will be issued on a first come, first served basis. These are secured NCDs.
The interest rate offered is 6.75% for the three year, 7.6% for the five year, 7.9% for the seven year period and 8.2% for 10 years.
For seven year and ten year period, quarterly interest payments option is also available.
Currently, the yield of AAA oriented corporate bond mutual funds is around less than 6.0%.
These IndiGrid NCDs would be listed on BSE and NSE. So, they are reasonably liquid investments.

If liquidity and single company risk exposure is not a consideration, the IndiGrid NCD offers higher interest with similar risk profile.
Minimum NCD investment – Rs 10,000 (10 NCDs) (for all options of NCDs, namely Series I, II, III, IV, V and VI) and thereafter in multiple of Rs 1000 (1 NCD)
NCD issue size – Rs 1.000 crore (including oversubscription)
What about NCD taxation
Coupon from NCDs received will be taxed in the hands of investors at the marginal rate of tax.Â
Long term capital gains (held for more than 12 months) on transfer of listed debentures of IndiGrid shall be taxed @10% (without indexation).Â
Short term capital gains will taxed at the marginal rate of tax.

Is IndiGrid a reliable company
IndiGrid is in the power transmission sector having various transmission assets through various special purpose vehicle (SPVs).Â
As per Crisil, in the prospectus, all transmission SPVs have stable operations with a healthy track record of above-normative transmission line availability of over two years.Â
Revenue of a transmission SPV is completely delinked from the power demand-supply situation and volatility in electricity prices.Â
Almost all SPVs under IndiGrid are interstate transmission system (ISTS) licensees and come under the PoC pool mechanism.Â
Financial risk profile is robust, driven by stable cash accrual, healthy net debt-to-value ratio, strong DSCR and a three-month DSRA. The financial risk profile is also supported by the expectation that distribution of cash flow from IndiGrid to its unitholders will take place only after servicing of the external debt.
Who should invest
The NCDs are ideal if you are looking for regular income for short to long term. This will be through regular interest that the NCDs promise.Â

Axis AAA Bond Plus ETF NFO opens today; should you invest?

Axis Mutual Fund, one of the fastest growing fund houses in India, has announced the launch of their new fund offer â€“ â€˜Axis AAA Bond Plus SDL ETF 2026 Maturityâ€™. It is a target maturity ETF â€“ a portfolio, specifically designed to terminate at a pre-defined date â€“ that will invest in a portfolio of high quality debt instruments. The new fund offer (NFO) opens for subscription from April 23, 2021 to May 7, 2021. Given that this is a new product, here is a primer on the product. Read on.

What is Axis AAA Bond Plus SDL ETF – 2026 Maturity

This is an open-ended Target Maturity Exchange Traded Fund investing predominantly in constituents of Nifty AAA Bond Plus SDL Apr 2026 50:50 index.

An ETF is a mutual fund designed to track the performance of an index. This is achieved by closely replicating the portfolio of the underlying index. ETFs trade in bite sized units on an exchange at market determined prices. While traditionally in India it is the equity and gold ETFs that have been popular, debt ETFs are fast making a space for themselves. Debt ETFs offer investors a great combination of stability and liquidity.

The benchmark index has a maturity date of April 30, 2026. Further the composition of the benchmark is an equal allocation towards AAA securities and SDLs, thus offering investors with a very high credit quality and diversified portfolio.

How does a target maturity ETF work

A target maturity ETF is a portfolio designed to terminate at a predefined date.

The fund manager achieves this by buying securities with similar maturities as close to the defined maturity date and holds them to maturity.

As time passes, the ETF may add securities that meet the methodology criteria. As the ETF progresses the duration of the securities diminishes until the fund matures.

Thus, the strategy aims to negate any duration risk for investors who remain invested through the life of the ETF.

Why this product now

5 year yields have seen the maximum retracement since December 2020.

The run up in yields has resulted in the spread between 3 year AAA & 5 Year AAA papers trade at its highest level in 2 years.

Even for investors with a longer investment horizon the 5 year space is a compelling alternative since 5 year levels are trading at levels similar to comparable 10 year instruments.

High quality SDLâ€™s also offer significant opportunities given that they trade at levels higher than AAA â€“ PSUâ€™s currently.

According to the fund-house, current yield levels provide adequate buffer for even shorter term investors.

What about the debt index

Nifty AAA Bond Plus SDL Apr 2026 50:50 Index is a portfolio of AAA rated bonds issued by government owned entities, HFCs, Corporates and State Development Loans (SDLs) maturing between May 01, 2025 to April 30, 2026. The index will be managed by NSE Indices Limited.

AAA rated bonds include those belonging to HDFC Ltd, REC Ltd, Indian Oil Corporation, Power Finance Corporation Ltd, Export Import Bank Of India and NTPC Ltd.

SDLS include those belonging to Gujarat Government, Karnataka Government, Maharashtra Government, Tamil Nadu Government, West Bengal Government and Uttar Pradesh Government.

Who is this product for

Axis AAA Bond Plus SDL ETF – 2026 Maturity will facilitate passive investing for debt investors by offering them a fund that has defined tenure close to 5 years.

The fund can be used by investors looking at a 5 year holding period but also by investors that want to take advantage of this strategy for shorter holding periods.

Thus, the Axis AAA Bond Plus SDL ETF – 2026 Maturity is a low-cost, hassle-free solution for investors looking to build their fixed income portfolio.

Top features of the fund

1. Opportunity â€“ The 5 Year AAA space is offering an interesting opportunity given the selloff since December 2020.

2. Core Allocation – Ideal solution for investors looking to invest with a 5-year investment horizon

3. Product Mechanism – Low cost hassle free solution for investors looking to build their core fixed income portfolio

4. Simple and Easy – Exchange traded, high quality portfolio with the benefit of 5 yearsâ€™ indexation

Fund-house speak

On the launch of the NFO, Chandresh Kumar Nigam, MD & CEO, Axis AMC said, â€œWe want to develop, introduce and provide the products that are relevant in the current context. Accordingly, we recognize the need to offer investors a choice of strategies including robust passive products across all asset classes. The launch of Axis AAA Bond Plus SDL ETF – 2026 Maturityâ€™ continues to take forward our endeavour to build up our passive product suite over time by offering investors an attractive debt strategy within the passive space.â€

RBI holds rates steady: What should debt fund, fixed income investors do

The first bi-monthly monetary policy for fiscal 2022 kept a status quo on all key policy rates. The Monetary Policy Committee (MPC) of the RBI also reiterated an â€œaccommodative stanceâ€ on rates and â€œsurplus liquidityâ€ to help the economy return to a durable growth path. In this backdrop, what should fixed income and debt fund investors do? Here is a low-down.
Positive for long end tenor
Key measures include a quarter wise OMO calendar, that should help manage the yield curve and the massive borrowing program, with INR 1 trillion scheduled in Q1-FY 22. RBI expects inflation to rise marginally in FY 22 though expects food inflation to soften. “The policy is supportive of long end rates, with some impact at the shorter end owing to longer tenor liquidity absorptions as part of the liquidity management program. We would continue focusing on Banking & PSU, Corporate Bond and Dynamic Bond fund categories, post todayâ€™s policy, ” says Kumaresh Ramakrishnan, CIO-Fixed Income, PGIM India Mutual Fund.
Corp bond spreads remain moderate
Interest rates are likely to remain range bound going forward as RBI is committed to ensure easy liquidity and low repo rates. The increase in Government borrowings are likely to be partially offset by RBI OMOs and secondary market purchases of Government securities. Inclusion of government securities global bond indices will add to the demand.
“Corporate bond spreads are likely to remain at moderate levels on back of restrained supply and continued demand from institutional investors. Unless inflation expectations start increasing in the future, fixed income investors will do well to remain invested in Indian bonds,” says Sandeep Bagla, CEO, TRUST Mutual Fund.
Dynamic for higher risk takers
RBI’s concerns over inflation was clearly reflected in the governor’s statement. This along with the fact that the RBI has given up on the time based forward guidance to keep monetary policy accommodative, indicate that course of monetary policy could change sooner than expected.
Says Pankaj Pathak – Fund Manager – Fixed Income, Quantum Mutual Fund: “We expect that the RBI could start hiking policy rates towards end of this year. On the other hand the commitment to buy government bond under the GSAP is a good move to support the long term bond yield. this will support long term bond yields in near term. But medium term trajectory will depend more on the policy outlook.”
Pathak feels investors should expect gradual rise in bond yields over medium term We also expect very high volatility in interest rate going forward, he added.
Dynamic bond funds could be an option for investors with long time horizon and higher risk appetite. Conservative investors should stick to liquid funds.

Low single-digit returns

“Todayâ€™s RBI policy has reiterated our earlier view that investors should expect low single-digit return from the bond market in FY22 and will have to increase their average maturity in order to optimize their risk-adjusted returns. We wish to highlight that investors at the short-end (up to 2Y) will probably earn
zero or negative real return (inflation-adjusted) in FY22, similar to FY21,” says Dhawal Dalal, CIO-Fixed Income, Edelweiss Asset Management.

Prudent investors are requested to consider investing in high-quality bonds maturing in 5Y or higher through passively-managed target-maturity bond index funds as well as bond ETFs to benefit from diversification, transparency, simple & clear investment objectives and predictability of returns for hold-to-maturity investors in our opinion, Dhawal added.

The move to introduce G-SAP â€“ secondary market GSec acquisition program is a master stroke by the RBI, said many experts. This would reign in sharp spike in GSec bond yields. Introduction of long term VRRR (variable rate reverse repo) is an extension towards normalising liquidity. “Liquidity surplus however will and is likely continue. We expect yield curve to flatten from the current levels with the longer end of the yield curve compressing faster than the short end,” says Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mutual Fund.

“…with these measures, RBI measures should be able to counter the global adverse backdrop of upward movement in yields and higher commodity prices. The increase in Long term repo operations over 15 days could see the upto one year yields moving up by 10 to 15 basis points and remaining at that level,” feels Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund.

Rising bond yields: What it means for equity, debt investors

Indian financial markets and global financial markets right now have something in common: rising yields. By the end of third week of February, the average increase in India’s G-Sec yields across 3,5 & 10 years was around 31 basis points since the Union Budget on concerns of the market borrowing plans of the government. Things haven’t improved much. Currently, the 10-year G-Sec yield is now ruling at 6.25 per cent.

On the other hand, US yields have risen too. The 10-year US treasury yield has increased to nearly 1.5 per cent from 0.7 per cent six months ago, creating fear in the minds of investors across the globe. In this context, it is important for investors to understand how to read these changes for debt and equity investments.

Understanding rising yields

Simply put, rising yields on bonds means that bond prices are falling.

India’s G-Sec yields are not softening in a hurry. Research firm AcuitÃ© Ratings & Research expects Indiaâ€™s 10-year sovereign yield to rise to 6.40 per cent by March 2022.

From a classical economics standpoint, the rise in bond yields hikes up the cost of capital for companies. When the cost of capital rises for a company, it can affect earnings and, by extension, its valuations.

One thing is clear. Global and local central banks have kept interest rates low for long. So, the increase in yield is in-line with some normalisation that eventually had to happen.

Whenever the bond yield increases, investors are likely to withdraw from equities and look at bonds, who are offering higher money at lower risk.

Indian context

Yet, it is also true that some investors are panicking too much on account of the rising yields. Rising yields is not necessarily a very bad thing. The global rise in yields does not mean a ‘sell call’ on equities.

In the US, the key premise on which bond yields are rising or rather normalising to pre-Covid levels is that US economic recovery will be faster than earlier envisaged resulting in rising inflation. Is US and Indian economic recovery bad for equities? No!

“In our view, equities as an asset class perform better in an environment of â€˜rising growthâ€™ and â€˜moderate inflationâ€™. For example, despite the rise in Indian bond yields from ~5 per cent to 9 per cent and US yields from 3.5 per cent to 5 per cent from 2003 – 2007 as demand-led inflation picked up, global stock markets including India had their best run as growth kept surprising on the upside,” says ICICI Securities.

However, do keep a close watch on the situation. You can take a negative stance when the environment has rising yields and slowing growth or stagflation. This happened in the 2012-2013 period when India GDP growth dipped to ~5 per cent while yields climbed to 9 per cent, coinciding with the taper tantrum. This is the worst environment for stocks.

How to play debt funds

Enough of explanation for equities, let us look at debt – specifically debt funds. The fundamental characteristic of your debt fundâ€™s return is guided by yields. As yields move up the prices of bonds fall. This fall is sharper in longer duration bonds and slower in lower duration bonds.

But if yields move up, the fall in bond prices will be inevitable. So, when yield moves up, there can be losses in debt funds. When the yield up move is gradual, the fall in returns will be gentle. When the yield jump is sharp, the fall in debt fund returns will be sharp.

Do note that debt funds with longer duration are more sensitive than the ones with shorter duration.
The yield impact on debt funds’ existing investments will be progressively lower as and when the funds start buying bonds with higher coupon rate.

Note: If you would like to know what should be your portfolio strategy in an environment of rising yields, connect with the experts at Wealthzi.

How to invest in government bonds in India

A Government Security (G-Sec) is a tradable instrument issued by the Central Government or the State Governments.

So, what are the different types of government bonds?

In India, the government issues short term as well as long term government securities (G-Sec). Short-term G-Sec are those that have a maturity of less than one year. These are often treasury bills, or T-bills. Treasury bills are zero coupon securities and pay no interest. Treasury bills come with a maturity of 91 days, 182 days and 365 days.

G-Sec with a maturity of one year or more are long-term government bonds. While the Central government issues treasury bills and government bonds, State governments issue only bonds called the State Development Loans (SDLs).

How are government bonds issued in India

The government sells bonds using auctions where it announces auction dates and the details of the bonds that will be sold. The government will disclose the value of securities it intends to sell. Two auction processes are employed: There are yield-based auctions and price-based auctions. The former is used to sell new G-sec bonds while the latter is where the government will reissue securities issued earlier.

The Reserve Bank of India (RBI) conducts auction of G-sec and T- bills on a weekly basis as per the schedule below.

Government Security	Bidding Period Starts on NSE e-Gsec	Bidding Period Ends on NSE e-Gsec	Auction Date at RBI	Settlement Date
T-Bills (91 day,182 day, 364 day)	Monday	Tuesday	Wednesday	Thursday
GoI Dated Securities	Tuesday	Thursday	Friday	Monday

*Source: HDFC Securities

The stock exchanges offer a non-competitive bidding window to retail investors every week for all G-Secs. You can bid using your trading account and the funds will be deducted from your linked bank account. The G-Secs will be credited to your demat after they are successfully allotted. The interest payments will be credited to your bank account. Since government bonds are listed on stock exchanges, you can sell them anytime.

Which are the government bonds you can consider?

Usually, bank fixed deposit interest rates are more for the short term when compared to those offered by short term government securities. However, most of the time long term government bonds offer better interest rates than bank deposits. One such bond is the Floating Rate Savings Bond, 2020 (Taxable). These bonds were launched on July 01, 2020. The government is using these bonds to enable Resident Indians to invest in a taxable bond, without any monetary ceiling. The tenure for the bonds is 7 years. You can hold these bonds jointly.

Since the bonds will have a floating interest rate, they are floating rate bonds. The interest rate of the bond will be based on the interest rate of the National Savings Certificate (NSC). The interest rate for the floating rate bonds will be NSC interest rate plus 35 basis points over the rate. The interest rate for the floating rate bonds will be reset on a half-yearly basis. The interest on the floating rate bonds will be payable at half yearly intervals. One payment will be made on January 1st and the other will be on July 1st every year. The present interest rate for these bonds is 7.75%. The interest received from the bonds will be taxable under the Income-tax Act, 1961.

The floating rate bonds will be issued only in the electronic form. You will need to hold the bonds in an account called Bond Ledger Account (BLA), opened with the Receiving Office.

Other government bonds such as the Sovereign Gold Bond (SGB) (read this article to learn how to invest in SGB), Capital Gains Bonds and Tax-Free Bonds can also be considered.

How are government bonds taxed?

There will be no tax deducted at source (TDS) for government bonds. However, the interest for the bonds is taxable. Capital gains on sale of bonds will be taxed as per the investorâ€™s income tax bracket if they are short term. Long term capital gains will be taxed at 20% with indexation benefit.

Looking to invest in government bonds? The team at wealthzi.com can help you. Click here to invest.

Power Finance Corporation NCDs offer upto 7.15% interest; how to invest

Power Finance Corporation’s first tranche of NCDs (non-convertible debentures) with a base issue size of â‚¹500 crore and greenshoe option of â‚¹4,500 crore (total â‚¹5,000 crore) will open on January 15 and close on January 29. As much as 80 per cent of the NCD issue is being allocated for retail investors (40 per cent) and high net worth individual investors (40 per cent). To know more, read on.

About Power Finance Corporation (PFC)

PFC is the countryâ€™s largest infrastructure financing company dedicated to the power sector. Its shares are listed on stock exchanges.

Attractiveness of this public issue is that the offering is from the highest safety rated issuer with a sovereign character and market leader in its segment.

For PFC, this maiden NCD issue is a step towards further diversification of source of funds and intended to tap wider retail taxable bond segment.

Where would money from NCD be used

At least 75 per cent of the proceeds would go towards onward lending and financing/refinancing of existing debt.

NCD issue details

Each NCD has a face value of â‚¹ 1,000 each.

The NCDs are taxable, secured, and will be listed on Bombay Stock Exchange.

PFC is offering 7 options.

3 years fixed annual – Here you get 4.8 per cent annually.

5 years fixed annual – Here you get 5.8 per cent annually.

10 years fixed quarterly – Here you get 6.82 per cent annually. But the interest is paid on 4th day of every quarter.

10 years fixed annual – Here you get 7 per cent annually.

10 years floating annual – The company is offering Series V NCDs which carries floating interest rate based on FIMMDA 10Yr G-sec benchmark published by FIMMDA Reference. The specific spread for HNIs and Retail investors will be 80 basis points. So, you get annual interest based on the reference plus the spread.

15 years fixed quarterly – Here you get 6.97 per cent annually, but interest is paid out quarterly.

15 years fixed annual – Here you get 7.15 per cent annually.

As per the company, a majority of banks are offering rates from 4.5-6 per cent across tenors (up to ten years). NSCs are offering 5.8 per cent.

NCD ratings

The NCDs proposed to be issued under the issue have been rated â€˜CARE AAA; Stableâ€™ by CARE Ratings Limited (â€œCAREâ€); â€˜CRISIL AAA / Stableâ€™ by CRISIL Limited (â€œCRISILâ€); and â€˜[ICRA]AAA(Stable)â€™ by ICRA Limited (â€œICRAâ€).

Instruments with these ratings are considered to have the highest degree of safety regarding timely servicing of financial obligations and such instruments carry lowest credit risk.

These ratings are not a recommendation to buy, sell or hold the NCDs and investors should take their own decisions.

NCD securityÂ

The principal amount of the NCDs to be issued together with all interest accrued on the NCDs shall be secured by way of first pari passu charge through the hypothecation of the book debts/receivables (excluding the book debts / receivables on which a specific charge has already been created by PFC).

Taxation

Interest income on NCDs is taxable at your slab rate whether on pay-out or under the cumulative option. If you sell the bond in the exchanges in less than a year, short-term capital gains, at your tax slab, will be applicable. If you sell after a year of holding, then long-term capital gains tax without indexation will apply.

How to apply

An eligible investor desirous of applying in the NCD issue can make applications only through the Applications Supported by Blocked Amount (ASBA) process.

Category III or High Net-worth Individual Investors (â€œHNIsâ€) can apply for an amount aggregating to above Rs 10 lakh across all options of NCDs in the issue. Category IV or Retail Individual Investors can apply for an amount aggregating up to and including Rs 10 lakh across all options of NCDs in the issue.

Applicants can apply for any or all series of NCDs offered hereunder provided the applicant has applied for minimum
application size using the same application form.

If you would like to subscribe to Power Finance Corporation NCDs, contact Wealthzi team at [email protected] or open an account at www.wealthzi.com.

How to choose corporate bonds

Most conservative investors keep looking for alternatives to bank savings accounts and fixed deposits. While government securities are a safe and stable alternative to these investments (read this article for information on G-Sec ETFs), investors can also look at corporate bonds. Here are the details you need.

What are corporate bonds?

Companies need capital for conducting their businesses. There are several ways to get money. One of them is by issuing corporate bonds to investors. Corporate bonds are debt securities issued by private and public corporations. Since bank loans are expensive, companies find this an easy way of raising low cost capital for their business.

When you buy a corporate bond, you lend money to the company that issued the bond. For this, the company promises to pay interest and return the money on a specified maturity date. So, when you buy a bond, the company is borrowing money from you. It will pay interest to you on the investment and will repay the principal after the maturity of the investment. While you will look at the interest rate if you are buying bonds from the company, when you are buying bonds from the secondary market, you will need to look at the yields of the bonds.

What are bond yields?

Yield helps you measure the return of different bonds. Yields are not fixed because this is not the interest rate on the bond. Yields change with the price movements of a bond and interest rates. Bond prices are inversely proportional to the yields.

Corporate bond yields tend to rise in value when bond prices fall, and they fall when bond prices rise. The longer the maturity of the bond, the greater will be the price volatility. For instance, if you buy a bond and sell it after a year, you will receive a lower price on the bond if the interest rates are rising. This is because your bond is paying a lower interest rate. There is present yield and yield to maturity (YTD). Present yield is based on the market price of the bond. If the market price of the bond is more or less than the face value of the bond, the present yield will be different. For instance, if you buy a bond with a face value of Rs. 100 and it provides interest of 7%. If the price of the bond is Rs. 94.5, your present yield will be 7.4% (Rs. 100 x .07/Rs.94.5).

YTM is the yield that you will receive if you hold a bond until maturity. It helps you compare bonds that have different maturities and coupons. YTM will include all the interest payments and the capital gains on the bond.

However, if you hold the bond till maturity, you donâ€™t need to worry about yields. By holding a bond until maturity, these price fluctuations known as interest-rate risk, or market risk will not affect you because you will receive the principal at maturity.

What are the advantages of corporate bonds?

The main benefit of investing in corporate bonds is their higher yields. The yields are much higher than that of government bonds. Another benefit is the income from these investments. Corporate bonds provide interest on the bonds. These are known as coupon payments. You can receive the money in your bank account.

Corporate bonds are provided with credit ratings. These ratings enable you to evaluate corporate bonds. The higher the rating of the bonds, the safer it is to invest in them. The most important benefit of investing in corporate bonds is that you can sell them easily in the secondary market. There are several investors in the corporate bond market that include mutual fund houses. There are always people buying and selling corporate bonds. So, you can sell your bonds in the market anytime.

How to invest in corporate bonds?

Investors can use their demat account for purchasing bonds. The help of a broker will be needed for this. This is because picking a corporate bond is tough for a novice investor. Wealthzi.com can guide you on investing (Click here to learn more).

You can invest in corporate bonds through mutual funds. Corporate bond funds provide you with the benefit of investing in corporate bonds along with diversification and professional management. You can take advantage of taxation if you stay invested for more than three years. Long Term Capital Gains (LTCG) of these funds are taxed at 20% with indexation benefit.

Who should invest in corporate bonds?

Corporate bonds are ideal for low to moderate risk investors who want higher returns on their fixed income investments. However, one should purchase corporate bonds only if they have the knowledge to analyse the companyâ€™s fundamentals. Otherwise, it is best to invest through mutual funds.

Get 7.75% annual interest from Muthoot Finance NCDs; how to apply

Muthoot Finance Limited (MFL), the flagship company of the Kerala-based business house The Muthoot Group, is in the market to raise upto Rs 1000 crore through a public issue of secured Non-Convertible Debentures (NCDs). Muthoot Finance is Indiaâ€™s largest gold loan focussed NBFC and its equity shares are listed on stock exchanges. The NCDs being offered can deliver annual interest of 7.15% to 7.75% to HNIs and retail investors. Read on to know more.

NCD issue details

The base issue size is Rs 100 crore, with an option to retain oversubscription of Rs 900 crore. Total funds that can be raised from the issue is Rs 1000 crore.
Each NCD costs Rs 1000.
Muthoot Finance’s NCD issue is open till January 5, 2021. There may be early closure.
Minimum application amount would be Rs 10,000.
The NCDs will be listed on BSE within 6 working days from the issue closing date.

Interest and options

There are 6 options.
1. Monthly – 38 months tenure – 7.15% per annum (base rate of 6.75% + 0.40% incentive)
2. Annual – 38 months – 7.40% per annum (including incentive)
3. Monthly – 60 months – 7.50% per annum (including incentive)
4. Annual – 60 months – 7.75% per annum (including incentive)
5. Maturity payment – 38 months – Rs 1 lakh investment can become Rs 1.25 lakh
6. Maturity payment – 60 months – Rs 1 lakh investment can become Rs 1.45 lakh.

NCD safety, ratings

The NCDs proposed to be issued under this offering have been rated [ICRA] AA (Stable) by ICRA, and have been rated CRISIL AA/Positive by CRISIL.
The rating of the NCDs by ICRA and CRISIL indicates high degree of safety regarding timely servicing of financial obligations.
Do remember the rating provided by ICRA and CRISIL may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating.

Security of NCDs

The claims of the secured NCD holders are superior to the claims of any unsecured creditors, subject to applicable statutory and/or regulatory requirements).
The secured NCDs will be secured by way of first pari passu charge on current assets, book debts, loans and advances, and receivables including gold loan receivables, both present and future, of Muthoot Finance company, by way of hypothecation.

Taxation

How to apply

An eligible investor desirous of applying in the NCD issue can make applications only through the Applications Supported by Blocked Amount (ASBA) process.

Category III or High Net-worth Individual Investors (“HNIs”) can apply for an amount aggregating to above Rs 10 lakh across all options of NCDs in the issue.Â Category IV or Retail Individual Investors can apply for an amount aggregating up to and including Rs 10 lakh across all options of NCDs in the issue.

Please note that there is a single application form for all applicants.

If you would like to subscribe to Muthoot Finance NCDs, contact Wealthzi team atÂ [email protected]Â or open an account atÂ www.wealthzi.com.

Edelweiss NCDs offering upto 9.95% coupon; how to subscribe

Edelweiss Financial Services Ltd, a category I Merchant Banker and the parent company of the Edelweiss Group, is offering Non-Convertible Debentures (NCDs) to the public. The money so raised will primarily be used for pre/repayment of debt, and the rest can be used for other corporate purposes. The offer opens on 23 Dec, 2020 and closes on 15 Jan, 2021. The NCDs carry a face value of Rs 1,000 with a minimum application size of Rs 10,000.

Interest rate offerings

Investors have 7 options to choose from this debentures/bonds offer. There are 3 tenures – 36 months (3 years), 60 months (5 years) and 120 months (10 years). There are annual and cumulative interest payment under 36 months and 60 months options. There is a monthly interest payment under 60 months and 120 months options. You get monthly, annual and cumulative interest payment only under 60 months option. Cumulative means if you hold till maturity.

Let’s look at some options. The 3-year cumulative NCDs can fetch you 9.35% per annum. The 5-year cumulative NCDs can fetch you 9.8%. The 10-year annual option gives 9.95%.

Attractive yields

The rates offered by the Edelweiss Financial Services NCDs are attractive relative to yields prevailing in the market. Currently, market yields on corporate bonds with the same credit rating as Edelweiss Financial Servicesâ€™ debentures (CARE has given A+ rating) hover at 8.7% for 3 years, 10.3% for 5 years and 11.4% for 10 years. Brickwork Ratings has given a AA- (Double A minus) rating to Edelweiss Financial Services’ debentures. The market yields on corporate bonds with same credit rating hover at 8.52% for 3 years, 9.72% for 5 years and 10.82% for 10 years.

Hence, the interest rates offered by Edelweiss Financial Services are attractive relative to corporate bonds yields prevailing in the market in the three-year and five-year option if you take Brickwork’s AA minus rating given to the Edelweiss parent company. From a spread perspective, the 3 year option makes sense if you have adequate risk appetite.

Fully secured NCDs

The NCDs being offered are proposed to be fully secured by way of first pari-passu/ specified charge in favour of the Debenture Trustee (Beacon Trusteeship) on an identified immovable property and/or future receivables of Edelweiss Financial Services, created in favour of the Debenture Trustee. This will be as specifically set out in and fully described in the Debenture Trust Deed, except those receivables specifically and exclusively charged in favour of certain existing charge holders. All this will be done in a way that a security cover of at least 100% of the outstanding principal amounts of the NCDs and interest thereon is maintained at all time until the Maturity Date.

Do note the Edelweiss debentures/bonds do not carry any Put or Call options. The debentures will be listed on the exchange where investors can exit before maturity. Remember that such a exit will be subject to actual trading volumes and the market price may vary from face value.

Taxation

If you would like to subscribe to Edelweiss NCDs, contact Wealthzi team at [email protected] or open an account at www.wealthzi.com

What debt funds are good in a low-interest rate regime?

The Reserve Bank of India (RBI) has been cutting interest rates for the last few years. Since then yields of fixed income securities have been falling. The yields of government bonds have been steadily declining for the past two years. Yields were more than 8.1% in 2018 and are now below 6%.

If you look at the reverse repo rate (the rate at which RBI borrows money from commercial banks), it is at a historical low of 3.35%. The difference between the repo rate and the 10-year government bond yield is at a historical high. Usually, the difference is 50-100 basis points. Now, it is more than 250 bps. The higher difference means lower interest rates are not properly transmitted to borrowers and cheap credit isnâ€™t available for the citizens.

While borrowers arenâ€™t enjoying higher rates, depositors have to take the lower rates offered for their savings accounts and deposits. Given the scenario, investors could look at debt funds for higher returns. The historically high spread between government securities and the reverse repo rate provides attractive opportunities to debt fund investors over the medium term. The difference between government securities and corporate bonds also provide an opportunity to investors to make profits on their investments in the medium term.

Which debt funds are good now?

Fund managers are now allocating money to the longer end of the yield curve as interest rates are remaining low. Funds such as medium duration funds, credit risk funds and dynamic bond funds look poised for good returns if investors stay invested for three to four years. These are funds that can take advantage of the arbitrage opportunities available in the debt market. Even some short duration funds could be considered by investors with a low risk appetite.

Short duration funds usually have durations between 1-3 years. So, short duration funds can invest in short term and slightly longer-term debt securities. Short duration funds have lower interest rate risk when compared to medium and long duration funds. They invest in government securities such as treasury bills, derivatives, Public Sector Unit (PSU) bonds and rated corporate bonds. Data from AMFI shows that short duration funds have been sought after by investors recently. More than 41,000 folios have been added in a month in these funds.

Medium duration funds are open ended debt mutual funds that invest in securities with maturity of about 3-4 years. The fund manager invests across securities with different credit qualities. So, the credit risk is higher. However, since interest rates seem to be on a downward trend and wonâ€™t be moving up anytime soon, the interest rate risks for these funds are much lower than that of long duration funds.

Credit-risk funds are funds that invest approx. 65% of their assets in less than AA-rated securities. By taking greater credit risk, they provide high returns. The interest rate risk for these funds is low because most of them are of a lower duration. Typically, these funds can provide 2-3 percent more returns than risk-free investments. Since timing of entry and exit in credit risk funds is not advisable, these funds should be avoided by novice investors or investors with a low risk appetite.

How have these funds done?

Short term funds with duration of 2-3 years such as corporate bond funds and banking PSU funds have done well in the last few years. They have provided investors with annualised returns of over 7.5% and 8.5% in the last 3 years. This is much higher than the interest rates given by bank deposits and tax-free bonds. So, investors with a low to medium risk appetite could look at short duration funds and banking, PSU funds while those with higher risk appetite can consider medium duration and dynamic bond funds.

It is very important for you to assess your risk profile before investing. For instance, dynamic bond funds carry higher duration risks while credit risk funds have higher credit risks. One should allocate based on their risk appetite and time horizon available for the investment. Also you should be aware of the risks being taken by the fund manager in each debt fund.

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