Shriram Transport offers up to 11.75% on NCDs: 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 7 October to 21 October. Allotment will be done on a first-come-first-served basis. The issue comes with the added advantage of additional incentive on coupon for individual investors by offering them 50 to 100 basis points higher returns.

“This is out sixth issue in the last five years. Second time, this year, previous issue was in July this year. The current issue, along with its greenshoe option, is for Rs 5,00 crore,“Umesh Revankar, Managing Director and CEO told Firstpost.

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. This means that the issues is low credit risk.

Finer details: The effective yield is in the range of 11.25-11.75 percent for retail investors. This is surely higher yield compared with what fixed deposits are offering currently. This does not come with call or put options.

Options: The company offers six 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, “Series 4,5, and 6 shall be redeemable at a premium, at the end of 36 months, 60 months and 84 months, respectively, form the deemed date of allotment.” The effective yield of Series 4,5, and 6 will be 10.75 percent for non-individuals and 11.25 percent, 11.50 percent and 11.75 percent for individual investors. (See table)

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

For retail investors:

Series 1 annual coupon is 11.25 percent.

Series 2 annual coupon is 11.50 percent

Series 3 annual coupon is 11.75 percent.

What should you do:

This debenture is secured and hence less risky (not risk free). Individual investors in the lowest tax bracket could earn more than 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 short-term debt funds are more liquid and tax efficient. “This is a good investment oppurtinity for those in the lowest tax bracket. For those who are in highest tax bracket, there are tax free bonds available out there,” saysPankaj Mathpal, a Mumbai-based certified financial planner.Keep in mind that these NDCs can be traded on stock exchange in demat form.

Disclaimer: The article 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.