M&M Financial Services NCD – A WorthyFixed Income Opportunity?
After the IPO frenzy of Parag Milk Foods, Ujjivan, Thyrocare, Equitas, & flurry of tax-free bonds – IRFC, PFC, comes a fixed income opportunity launched by Mahindra & Mahindra Financial Services (MMFSL). Read on to know more.
Details of MMFSL NCD Tranche I Issue
This NCD issue is being offered for a tenor of 10, 7 & 5.5 yrs with corresponding coupon rates of 9%, 8.8% & 8.7% respectively for retail/HNI investors. Further details of the issue are mentioned below.
| Tenor (yrs) | Coupon Rate* |
| 10 | 9% |
| 7 | 8.8% |
| 5.5 | 8.7% |
*Coupon Rate mentioned is Effective yield per annum for both Retail & HNI Investors
Source – Company
| Issue Size | Base Issue Size of Rs. 250 crores with an option to retain over subscription uptoRs. 1,000 crores. There could be |
| Issue Open Date | 25th May, 2016, Wed |
| Issue Close Date | 10th June, 2016, Fri |
| Allotment Basis | First cum First Serve |
| Face Value | Rs. 1,000/- |
| Application Acceptance Time | 10 am to 5 pm. On issue closing date, forms will be accepted only until 3 pm |
| Minimum Application Amount | Rs. 10,000/- (10 NCDs) & in multiples of Rs. 1,000 (1 NCD) thereafter |
| Maximum Deposit Amount | For retail investors, the maximum investment limit is capped at Rs. 5 lacs.
For HNI investors, the minimum investment amount is Rs. 5 lacs. |
| Nature of Deposit | Unsecured Subordinated Redeemable Non-Convertible Debenture |
| Interest Payment | Quarterly/ Annual/ Cumulative |
| Listing | The NCDs will be listed on BSE & will be available for trading post listing |
| Eligibility | Resident Indian individual, HUF, HNI, QIB, Corporates |
| Withdrawal | There is no lock-in period. One can sell these NCDs in the secondary market after they are listed on the exchanges |
| Credit Rating | CARE AAA, IND AAA |
| Issuance Mode | Demat& Physical |
| Tax Treatment | Interest earned on these NCDs is taxed at marginal tax rate of the individual/ HUF investor. But if capital gains arises by selling these NCDs in the secondary market then capital gains tax will arise – Short-term capital gains tax (<1 yr holding period) levied at marginal tax rate (based on an individual’s tax slab) while Long-term capital gains tax (>1 yr holding period) levied at 10% without indexation benefit. |
Source – Company
How to Apply to the Issue?
The NCDs will be issued in a dematerialized or physical format. For those applying to the issue in the physical mode, PAN copy, address proof and cancelled cheque also need to be submitted alongwith the application form.
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ASBA (Application Supported by Blocked Amount) facility can be used to apply
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Online – Through the broker where one has a demat account
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Physical Form – Application forms can be filled and submitted to Brokers, Lead Managers, Members of Syndicate or Trading Members at select locations/ designated branches
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Please note that ASBA applicants can make an Application for allotment of NCDs in demat form only
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Non-ASBA applicants – Application for allotment of NCD in physical mode can only be made through non-ASBA medium
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Online – The direct online application facility through stock exchange will NOT be available for this issue
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Physical Form – Application forms can be filled and submitted to Brokers, Lead Managers, Members of Syndicate or Trading Members at select locations/ designated branches
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You may reach out to us in case you are facing difficulties in filling/ submitting the application.
GreenEdge Wealth Services’ View – Should You Invest in MMFSL’s NCD?
These NCDs score over bank FDs as they offer ~1.5% higher rates vs. Bank FDs to Retail/ HNI investors. The interest earned from these NCDs will attract marginal tax rates similar to bank FDs.
The tenor of 5.5, 7 & 10 years is certainly long but there is an opportunity to exit this investment before maturity in the secondary market (the issue will get listed on BSE) and earn capital gains. If the interest rates in the market declines, then bond price could increase & one could book profits by selling it in the secondary market (decent liquidity available) – This profit will be taxed as per your marginal tax rate if holding period is less than 1 year else it’ll be taxed @ 10% without indexation.
In our view, retail/ HNI investors can allocate a small portion of their fixed income portfolio to MMFSL NCDs as they offer higher interest rates vs. Bank FDs with very high safety (AAA rated) combined with opportunity to exit before maturity and earn capital gains on secondary market.
Also, please note that this issue is on First-come-First-Serve basis; so you should apply on the ‘issue open date’ itself!