Edelweiss 11.85% NCDs open tomorrow: All you need to know

Edelweiss Financial Services Limited announced its public issue of secured non-convertible debentures (NCDs). The issue is open from 16 January to 27 January. The issue aggregating to Rs 250 crore, comes with an option to retain over-subscription up to Rs 250 crore.

Rashesh Shah, Chairman & CEO, Edelweiss Financial Services Ltd claimed the NCDs offered attractive returns and are an opportunity for retail investors to make better investments.

 Edelweiss 11.85% NCDs open tomorrow: All you need to know

Representational image.

What is it: This is a secured NCD with a face value of Rs 1,000, with a minimum application of Rs 10,000 or 10 NCDs, in multiples of Rs 1,000.

Rating: The issue has been accorded 'AA' ratings by Care and Brickwork.

Finer details: The effective yield is in the range of 12.24-12.52 percent. Keep in mind that the coupon rate on the NCD is in the range of 11.60-11.85 percent. Those who are permanent resident employees of Edelweiss Group and resident Indian individual shareholders of Promoter Company will get an additional 0.25 percent per annum. This is surely higher yield compared with what fixed deposits are offering currently. The issue does not have call or put options.

Options: The company currently offers four options across four categories of investors. (see table)

Option 1 has 36 months tenor with monthly interest payment frequency.

Option2 has 36 months tenor with cumulative interest payment frequency.

Option 3 has 60 months tenor with monthly interest payment frequency.

Option 4 has 60 months tenor with cumulative interest payment frequency.

In December, IIFL had announced it's secured non-convertible debentures (NCDs) of India Infoline Housing Finance (IIHFL), which had a monthly option and tenor of five years. The yield on those NCDs was 12.15 percent per annum. Muthooth Finance and Manappuram Finance were the other companies that issued NCDs recently.

Tax:Keep in mind that the interest income would be taxable with these bonds. But if you opt for demat form, they will not attract any TDS. Those in the lowest tax bracket stand to earn around 10 percent post-tax returns. Those in highest tax bracket would earn around 8 percent post-tax returns.

Firstpost Take: As of now the interest rate cycle seem to be peaking. Getting locked at higher interest rate now is not a bad idea. But, of course, the instruments matter. "If you are in the highest tax bracket and don't mind being invested for long term, tax free bonds make better investment than these NCDs. We don't recommend AA-rated NCDs. But, investors should look into their investment time horizon and willingness to take risk, before investing," saidSuresh Sadagopan, Mumbai based Certified Financial Planners.If you are an investor with 3-5-year time horizon and willing to take a slightly higher risk than FDs, these NCDs might work for you. But, there surely are better options like tax free bonds out there.

Disclaimer:Each individual has his or her own financial situation and circumstance. We recommend that you consult a Certified Financial Planner before you buy a financial product or service.

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Updated Date: Dec 21, 2014 04:04:58 IST