NHAI Tax Free Bond Tranche II Issue

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IREDA tax free bonds issue is opening on 8th Jan. 2016

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IFCI Limited- Public Issue of Secured, Redeemable, Non-Convertible Debentures- Tranche II

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IFCI Limited NCD Tranche II Issue

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10Y G-SEC YIELD BELOW 8% and Mutual fund debt fund

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Muthoot Fincorp/SREI Infrastructure Finance - Collection Figures as on October 13, 2014 at 4.00 P.M

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Muthoot Fincorp/Manappuram Finance/SREI Infrastructure Finance - Collection Figures as on September 29, 2014 at 5.00 P.M

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Choosing bonds in secondary markets :: Business Line

There has been plenty of action in the bond market in recent weeks, with a number of new tax-free bonds hitting the market. What has added to the euphoria is the high coupon rate these bonds offer, thanks to the rising yield on the 10-year G-Sec, to which all these bonds are linked. There have also been other bond issues (taxable) by companies through non-convertible debentures, which have offered attractive rates.

Look to the secondary market

The easiest way to invest in these bonds is to subscribe at the time of the issue. However, there is no guarantee of allotment, as some of the issues get fully subscribed on the opening day itself. In such a scenario, the secondary market offers yet another avenue to buy bonds. For existing investors too, it is important to track the performance of their bonds in the secondary market.

This is because switching to other bonds may at times provide better returns, although most investors prefer to hold till maturity. Here’s what you should know when trading in the secondary markets:

Shriram Transport Finance NCD: Offers competitive returns:: Business Line

Rates on this NCD are not matched by bank FDs, NBFC or company deposits currently.

BOND WATCH, NCD, SHRIRAM TRANSPORT FINANCE, GOOD INVESTMENT OPTIONS:  

If you are looking for good investment options among fixed income instruments, a portion of your money can be parked in the latest secured non-convertible debenture issue from Shriram Transport Finance. For time periods of 36, 60 and 84 months (i.e., 3,5, and 7 years), the company is offering an interest rate of 11.25, 11.5 and 11.75 per cent respectively for individual investors. These rates are matched neither by bank fixed deposits nor NBFC/company deposits at the moment.

HOW IT COMPARES

The rates offered appear quite competitive on a few parameters. For one, it takes into account the upward move in the yield on 10-year gilt securities since the company’s first NCD offer in mid-July. Compared to its earlier issue, rates are higher by about 35 basis points. In this period, 10-year gilt yields have approximately moved up by a percentage point to 8.6 per cent now.

Secondly, rates are higher than what bank, company and NBFC deposits are offering currently. Bank deposits of 3 to 5 years offer only about 9-9.5 per cent interest rates. Among non-banks, Shriram Transport itself offers 10.75 per cent on its deposits (rated AA +) on three and five-year terms. For a higher AAA credit rating, M&M Financial offers slightly lower rates than Shriram Transport.

However, rates on the NCD are lower than recent issues such as those from SREI Infrastructure Finance, Muthoot Finance and IIFL. But this must be seen in the light of their credit ratings. Shriram Transport’s issue has been rated AA\Stable by CRISIL, while all the others have been rated at least a notch lower by various agencies.

THREE-YEAR OPTION IDEAL

Investors can choose the three-year option offering 11.25 per cent returns. In the 10-, 20- and 30-per cent tax brackets, the post-tax returns work out to 10.1, 8.9 and 7.8 per cent respectively.

Choose the non-cumulative option if you need regular income flows. Interest here is paid out annually. Interest on the non-cumulative option is compounded annually and paid out on maturity along with the principal.

Those with a slightly higher risk appetite can go for the five-year option. The stringent asset classification norms by RBI may impact the provisioning cost for the company. Currently, the loans for which instalments are overdue for 180 days or more are classified as non-performing. The proposal is to bring it down to 90 days (by end of 2014-15) for NBFCs in a phased manner. If these recommendations are accepted, the company may see higher delinquencies and hence higher provisioning costs.

TAX-FREE BONDS OR NCD

If you have a perspective of more than five years, tax-free bonds that are flooding the market now may be a better choice, especially if you are in the highest tax bracket of 30 per cent. The one from IIFCL, which is currently open, offers 8.26 per cent on 10-year bonds. Post-tax returns on the seven-year option from Shriram Transport will be marginally lower than this for someone in the 30 per cent tax bracket.

ISSUE DETAILS

The offer opens on October 7 and will be on till October 21. The minimum application amount is Rs 10,000. Investors are eligible to receive NCDs in physical mode if they choose to. The issue will be listed in the NSE and BSE. A downward movement in interest rates could lead to an appreciation in the value of the NCD.

Bet on bonds, after Ben-Rajan drama:: Business Line

Stocks have already reacted but high rates make debt attractive.

At last, the two big events that had markets in a tizzy over the last four months are over and done with: Ben Bernanke’s decision on tapering Fed’s stimulus and RBI governor Raghuram Rajan’s call on interest rates. Both gentlemen have managed to surprise the usually clairvoyant market.

Bernanke by deciding not to taper after making ominous noises about it since May and Rajan by hiking interest rates, when many expected him to cut. If you are an investor who has spent the last four months chewing your nails and waiting on the sidelines, these events are a cue to act. Here’s how you can overhaul your portfolio now.

NCDs vs Fixed Deposits :: Business Line

With equity markets remaining turbulent and NCD issues making a comeback, investors have yet another option to choose from, on the fixed income side. But, with fixed deposits offering attractive rates, should you take the plunge? To help you make a choice, let us delve into the attributes of these two instruments:

How to choose tax-free bonds :: Business Line

Buy a bond with a maturity closest to your investment horizon.

The current bond offering from Rural Electrification Corporation (REC) has prompted us to revisit the subject of tax-free bonds. Rather than look at whether REC bonds are attractive, our objective here is to show you how to choose tax-free bonds to align your investments with your life goals. We will use the features of the REC bonds to discuss the factors that you need to consider when you invest in tax-free bonds.

WHY TAX-FREE BONDS?

Your investment portfolio should necessarily have bonds. Retail bond products have fixed cash flows and finite maturity. This means you will know at the time of investment how much interest you will receive every year and when you will get back your initial capital. You should, for instance, invest in a 10-year bond if you need to fund your child’s college tuition fees 10 years hence. And if expected bond returns are lower than your required return, you should invest a proportion of your capital in equity.

In other words, you have to always invest in bonds. The issue is that interest income is taxed at your marginal tax rate. So, if you receive 9 per cent interest on your fixed deposits, your actual post-tax return at 30 per cent tax rate is 6.3 per cent. And this return will only get lower if the government increases the marginal tax rate for high-income earners!

So, what should you do? Your objective is to ensure that most, if not all, of your bond investments earn tax-free interest. This leaves you with two choices at present. You either have to invest in securities that can fetch you exemption under Section 80 of Income-tax Act for Rs 1 lakh every year. Or you have to buy tax-free bonds. And since Section 80 has an upper investment limit, you have to consider tax-free bonds for your bond portfolio.

The question is: Are you investing excess money at your disposal (discretionary wealth) or are you investing to achieve an objective? If it is the latter, you should buy a bond with maturity closest to your investment horizon. Suppose your daughter is scheduled to enter college 11 years hence, you should buy the 10-year tax-free bond, even if the 15-year bond is attractive!

But what if your investment horizon is 20 years or you are investing your discretionary wealth? You should use the break-even rule. That is, to make a meaningful comparison between, say, the 15-year and the 20-year bond, you will have to assume that all cash flows from the 15-year bond will be reinvested for additional 5 years. The rule is : Invest in the 15-year bond if the break-even rate appears lower than the expected 5-year deposit rate 15 years from now; break-even rate is the rate which makes you indifferent between investing in the 20-year bond, and buying the 15-year bond and reinvesting the proceeds in a 5-year bond.

BREAK-EVEN RULE

Based on the break-even rule, the 15-year REC tax-free bond appears attractive compared to the 20-year bond, if you expect the 5-year rate 15 years from now to be more than 5.9 per cent post-tax or 8.5 per cent pre-tax (at 30 per cent marginal tax rate). But the 20-year bond becomes attractive if you expect the tax rate to increase!

You do not have to forecast interest rates to apply the break-even rule. You have to intuitively sense whether the rate in the future will be higher or lower based on the current rate levels. The break-even rule helps you to choose bonds systematically. Importantly, the rule forces you to consider reinvestment risk instead of simply buying a bond that offers you higher interest rate today. You can use the break-even rule for your investments in bank fixed deposits as well.

SREI INFRASTRUCTURE FINANCE BOND: High risk dims returns :: Business Line

Investment Focus: REC bonds offer good yields - INVEST :: Business Line

How to get safe and sound returns :: Business Line

Bond with the best :Business Line

Basics of the bond market :: Business Line

The bond market is the focus of much attention these days with the U.S. Federal Reserve’s announcement of its intention to ease the monetary stimulus programme making foreign investors exiting the bond market in large swathes . So, what are bonds and what influences bond prices?

A bond is an instrument used by a company or a government for borrowing money for a specified period of time at a certain interest rate – fixed or floating. A bond is a debt instrument and the buyer of these is a company’s or a government’s creditor.

TERMINOLOGY

The face value of a bond, also called the par value, is the amount that a bondholder gets when a bond matures. The coupon is the interest rate that the bondholder receives (usually half yearly) till the date of maturity which is when the money borrowed is paid back. Another term associated with a bond is yield. It refers to the return one earns from investing in a bond. Yield is equal to coupon (interest) amount divided by the bond price. That is, the bond price and the yield are inversely related. The price of a bond keeps on changing in response to many factors. A bond is said to be trading at a premium when its price exceeds the face value and is said to be at a discount when its price is below the face value.

Let’s assume you buy a bond with a face value of Rs 1000 at a coupon (interest rate) of 7 per cent with a 10 year maturity. You will then receive an interest of Rs 70 per year for the next 10 years at the end of which you will be paid back Rs 1000.

Even though investing in bonds is supposed to be safe relative to equity, there are risks involved. There is an interest rate risk -- change in bond price in response to changing interest rates. Besides, the risk of not being paid the interest or principal -- credit risk – if the company or the government falls upon bad times also exists.

INDIAN MARKET

In India, bonds or dated government securities (G – Secs) are issued by the RBI on behalf of the government of India with the maturity period ranging up to 30 years. Corporate bonds are issued by companies with tenors of up to usually 15 years. While corporate bonds are relatively riskier (depending on the company issuing them) they may offer better returns. With government securities accounting for a major chunk of the debt market, they set a benchmark for the rest of the market.

If you intend on holding a bond till maturity, the variations in price may not bother you but for someone wanting to trade in bonds, these matter. The price (and so the yield) of a bond is influenced by a number of factors, an important one being the prevailing rate of interest. How do changing interest rates affect bond prices and yields? If the prevailing rates of interest rise then the newer bonds will be offered at higher rates of interest compared to the older bonds. Consequently, investors would prefer these to the older bonds which would no longer be in demand. The prices of the older bonds will therefore have to fall justifying the lower returns offered by them.

So, rising interest rates imply lower prices and higher yields for existing bonds. Likewise, if the prevailing interest rates fall, it will make the existing bonds that offer higher interest rates more attractive. This in turn will push up their prices and bring down the yields.

Shriram NCD -Lock into three-year option :: Business Line

Shriram Transport Finance has come out with the first public issue of non-convertible debentures (NCDs) for 2013-14, with attractive interest rates for individuals. The offer requires a minimum investment of Rs 10,000. In a scenario of declining interest rates, investments can be considered here as they offer relatively higher returns among fixed income options.

The company is offering both cumulative and non-cumulative option on its NCDs. Under the cumulative option, interest earned is compounded and paid on maturity, along with the principal. Investors have a choice of a three-year or a five-year tenure.

NON-CUMULATIVE OPTION

In the non-cumulative option, there are three choices. The first is with three-year maturity and annual interest payout. The second is with five-year maturity and annual interest payout. The third is with five-year maturity and monthly payout.

Investors not dependent on regular cash flows from interest payouts can choose the cumulative option as it will fetch higher returns due to compounding. The three-year option offers 10.9 per cent interest, whereas the five-year option offers 11.15 per cent interest.

We recommend investors to lock into the three-year cumulative option offering 10.9 per cent interest. The five-year NCD offers a marginally higher 11.15 per cent. But, with impending regulatory changes in the provisioning requirement for non-banking financial companies (NBFC), the company may see higher provisioning/ delinquencies. It is better to consider the shorter-term option right now.

At 10.9 per cent for three years, the post-tax return for investors in the 10 per cent, 20 per cent and 30 per cent tax bracket works out to 9.8 per cent, 8.7 per cent and 7.5 per cent, respectively.

These interest rates offered by Shriram Transport Finance are better than bank deposit rates as well as interest rates of non-banking financing companies with similar risk profile (CRISIL rating FAA or more).

Banks, on an average, currently offer 9 per cent interest on three-year deposits. The highest rate offered by banks for this timeframe is 9.25 per cent.

The offer is higher than NBFC fixed deposit rates for a similar tenure too. Dewan Housing currently offers 10 per cent interest on three year deposit. Mahindra Finance offers 10.25 per cent; Shriram Transport Finance on the other hand offers 10.75 per cent .

The issue has been rated “AA/stable” by CRISIL. This implies high degree of safety regarding timely servicing of financial obligations and carrying very low credit risk.

However, remember that NCDs are not insured like fixed deposits (insurance available upto Rs 1 lakh worth of deposits). The NCD of this company, however, is secured. This means that in case the company is liquidated, the NCD holders would be given a priority in repayment of money due to them as they are secured by a charge on any of the assets of the company. Besides, NCDs can be listed and traded in the stock exchange, although the liquidity may not be too high.

A downward movement in interest rates could lead to appreciation in the value of the NCD. When sold in the market, NCDs will attract short/long-term capital gains tax.

COMPANY DETAILS

Shriram Transport Finance is one of the largest asset financing company in India, strategically well-positioned in the pre-owned truck market. As of March 2013, the company has total assets under management of around 49,000 crore, with 80 per cent exposure in the pre-owned segment. The company has a market share of 25 per cent in this high yielding segment.

For 2012-13, the company’s net profit grew by 8 per cent to Rs 13,606 crore and its gross non performing assets (GNPAs) stood at 3.2 per cent of loans. The capital adequacy of the company for the same period was at 20.6 per cent, well above the mandated requirement of 15 per cent.

However, stringent asset classification norms by RBI may impact the provisioning cost for the company. Currently, the loans for which instalments are overdue for 180 days or more, are classified as NPAs. The Usha Thorat committee has proposed to bring it down to 90 days (by end of 2014-15) for NBFCs in a phased manner. If the recommendations are accepted, the company may see higher delinquencies and hence higher provisioning costs.

ISSUE DETAILS

The issue size is Rs 375 crore with an option to retain an additional Rs 375 crore. The issue opens on July 16 and closes on July 29, 2013.

Bonds appear a good bet:: Business Line

I am 49 years old and have been investing Rs 1,000 monthly through the SIP (systematic investment plan) mode in each of the following funds: HDFC Prudence, HDFC Top 200, DSP Blackrock Top 100 Equity and UTI Dividend Yield. Also, I have been parking Rs 2,000 each in IDFC Premier equity fund and Reliance Gold savings fund from April 1, 2011. Kindly suggest whether I can continue the same investment for the next five years.

T. Vasudevan

Cash in on the bond season ::Business Line