Muthoot Fincorp, Manappuram NCDs don’t look very attractive, say experts

Financial planners believe there are better options available in secondary market to scout for.

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Many investors prefer NCDs as they offer a fixed return: they pay about 200-300 basis points higher than bank deposits and since they are held in demat form, there is no tax deduction at source.
Financial planners believe investors could avoid the non-convertible debenture (NCD) public issues of Muthoot Fincorp and Manappuram Home Finance that are open for investment.

Manappuram Home Finance NCDs are rated AA by Care and have tenors of 36 months, 60 months and 2,500 days (about 7 years) with coupons ranging from 9.75 per cent to 10.65 per cent. Muthoot Fincorp is rated A+ by Brickwork and offers tenors of 24, 38, 60 and 90 months, with options to receive payments monthly, annually and in cumulative interest payment options, with the highest rate being 10 per cent.

Financial planners believe there are better options available in the secondary market to scout for, and based on their risk appetite, investors could buy NCDs of L&T Finance, Shriram Transport and others that offer yields of 8-11 per cent.


“There are good opportunities available in the secondary market for investors which are offering similar yields. Hence, they could look at buying NCDs from the secondary market that are higher rated and offer lucrative yields,” said Rupesh Bhansali, head (distribution), GEPL Capital. He recommended NCDs of L&T Finance and Shriram Transport .

For instance, the AAA rated 8.9 per cent L&T Finance NCD maturing in April 2022, trades at Rs 1025, at an yield of 9.61 per cent, while 9.35 per cent NCD maturing March 2029, trades at Rs 1110, giving an yield of 8.49 per cent. Shriram Transport NCD is paying 9.4 per cent and trading at Rs 1000 maturing in February 2024; it gives a yield of 11.28 per cent.

However, buying NCD from the secondary market is not the same as buying from the primary market. Investors need to understand when the NCD matures, what are its tax implications and calculate the return they can earn before buying.
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After the IL&FS crisis, risk appetite among investors is low, as they now prefer only highly-rated companies with reputed management and a sound track record. Given the low rating of these NCDs, financial planners believe it would be advisable to stay away from them. With low liquidity, financial planners believe there are enough opportunities for investors to scout for in the secondary markets.

Many investors prefer NCDs as they offer a fixed return: they pay about 200-300 basis points higher than bank deposits and since they are held in demat form, there is no tax deduction at source.

“Investors with low-risk appetite should not risk their capital,” said S Shankar, founder, Credo Capital. He advised investors to stick to bank deposits or AAA rated bonds from companies that have strong managements and a good profitability record.
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