Shriram Transport Finance NCDs Offer Interest Rate of 9.50 Per Cent; Bond Issue Opens From June 27 and Closes on July 20

Under cumulative option the NCDs offer you 9.20 per cent for 3 years and 9.40 per cent for 5 years

Bank fixed deposits offer you a low-interest rate averaging around 6 per cent. Small savings schemes are no more attractive given the rate they offer. So if you have been wondering where to invest your money for fixed income return here is an option for you. Shriram Transport Finance Company will raise Rs 5, 000 crore through a public issue of Non-Convertible Debentures (NCDs), which is starting from 27 June 2018 and closing on July 20.  Under the cumulative option, it offers you 9.20 per cent for 3 years tenure and  9.40 per cent for 5 years term. For non-cumulative option, one more option of 10 years is available at an annual return of 9.5 per cent.  The minimum amount to be invested is Rs10,000.

The additional incentive of 0.10 per cent is given to all individual investors across all series. Senior citizens are also offered an additional incentive of 0.25 per cent per annum.

Compared to 8.93 to 9.50 interest rate offered by Shriram Transport, Dewan Housing Finance Corp (DHFL) NCDs offered 8.9 per cent to 9.1 per cent for the period of 3 to 10 years to investors.

What are NCDs?

NCDs are like company FDs and, generally, offer higher interest rates than bank fixed deposits. The one big difference is that they can be traded in the market but, as the name suggests, they cannot be converted into equity shares at the time of maturity.

First Come First Served Basis

Most of these NCDs are offered at first come first served basis. What it means is that people who subscribe first get the first chance to invest in these schemes. It is, therefore, good to invest on the first day of the issue if the attractive interest rate is offered. To give you an idea, Dewan Housing Finance’s Rs 12,000-crore NCD issue collected over Rs 10,200 crore on the first day of the offering. Similarly, recently closed JM Financial Credit Solutions’ maiden NCD issue got subscribed 2.19 times on the last day.

Secured and Unsecured NCDs

Before investing in NCDs you also need to know whether it is secured or unsecured NCD. Holders of secured NCDs have an advantage in case of a liquidation of the company, as they have a claim in company’s assets.  Unsecured NCDs, on the other hand, are not paid if the company goes into liquidation. They are riskier and offer a higher rate of interest than the secured. Shriram’s NCD falls into the secured category.

Key Features of Shriram Transport Finance Company NCD

• Issue Size:  Rs 5,000 Crore
• Credit Rating: CARE AA+/Stable by CRISIL Ratings Limited
• Issuance Mode: Demat only
• Listing: BSE & NSE
• Face Value: 1000
• Coupon Rate (for individual investors):
  3 years- 9.20%
  5 years- 9.40%
• Interest frequency:
  3 yrs- Cumulative & Annual
  5 yrs- Cumulative, Annual & Monthly
• Minimum Amount:- 10,000
• Allotment on First come first serve basis.

Should You Invest in Shriram Transport Finance Company NCD

Bank fixed deposit rates are at the bottom but they are expected to go up from here. Given the fact that interest rate is extremely attractive you can invest for the shorten duration in these bonds. The additional incentive is the fact that it has liquidity too as the bonds will be listed on the exchange given you the chance to exit when you want. Also, understand that when you sell bonds on the exchange within a period of one year then short-term capital gain tax is levied. After one-year long-term capital gains tax is imposed at 20 per cent rate with indexation.