Shriram Transport offers NCD up to 11.15%: All you need to know

Shriram Transport Finance Co Ltd (STFL) announced its public issue of non-convertible debentures (NCDs). The issue is open from 16 July to 29 July. Allotment will be done on a first-come, first-served basis.

In the current market scenario, when many expect interest rates to fall in the future, this bond issue comes with the added advantage of additional incentive on coupon for individual investors by offering them 123 to 125 basis points higher returns. Umesh Revankar, Managing Director and CEO told Firstpost, “We have been regular issuers of NCDs. The current issue, along with its greenshoe option, is for Rs 75,000 lakh.”

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: It’s rated AA/stable by Crisil and AA+ by CARE.

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Finer details: The effective yield is in the range of 9.65-11.15 percent. This is surely higher yield compared with what fixed deposits are offering currently. This does not come with call or out options.

Options: The company offers five series, Series 1 is for 36 months and annual interest payout, Series 2 is for a tenor of sixty months and annual interest payout. Series 3 is sixty months and monthly payout. Revankar said, “We are offering the monthly interest payout keeping in mind the pensioners and retired individuals who would need interest payments on monthly basis.” The Series 4 and Series 5 are cumulative options, but they don’t come with a periodic interest payments for three and five years. Both Series 4 and 5 will be redeemable at a premium. (See table)

Who can invest: Four categories of investors can apply. Category 1 - institutional investors, category 2 - non institutions investors, category 3- HNIs (aggregate invest of more than Rs 5 lakh across series) and category 4- retail investors with aggregate investments across series less than Rs5 lakh.

For retail investors:

Series 1 annual coupon is 10.90 percent.

Series 2 annual coupon is 11.15 percent

Series 3 annual coupon is 10.63 percent.

Series 4 effective yield is 10.90 percent. ( Check redemption amount in table)

Series 5 effective yield is 11,15 percent. ( Check redemption amount in table )

If you look at the Series 2 option where the interest is 11.15 percent, it surely beats the rate of inflation, though marginally. Also, the debenture is secured and hence less risky, but not totally risk free. Individual investors in the lowest tax bracket could earn as much as 10 percent as post tax annualised returns.

Currently, most fixed deposits offer slightly lower returns. And short-term debt funds are giving slightly lower or almost similar returns. But remember that short-term debt funds are more liquid and tax efficient. These NDCs can be traded on stock exchange in demat form.

Disclaimer: T_he story aims to help readers with their money related decisions and choices. 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._