For those with an appetite for some risk


Interest rate and effective yield seem superior

Fixed income investors have yet another choice to consider. The latest in the list of NCDs (non-convertible debentures) to hit the market is that of JM Financial Products. The company, an NBFC, is part of the JM Financial Group. This is its first NCD issuance.

The issue is of secured, redeemable NCDs. It is open from April 22 to May 21 but could close earlier if fully subscribed. The total issue size is ₹1,000 crore comprising base issue size of ₹200 crore and option to retain oversubscription of ₹800 crore.

Issue details

The NCD is rated AA/Stable by CRISIL and ICRA, indicating high degree of safety regarding timely servicing of financial obligations. It comes in three tenures — 2, 3 and 5 years. The 2-year and 3-year NCDs have both the interest payout (annual) and cumulative options, while the 5-year NCD has only the interest payout (monthly and annual) option. In the 2-year NCD, the coupon rate in the annual payment option and the effective yield in the cumulative option is 9.9%, while in the 3-year NCD, the coupon rate and effective yield are 10.2%. In the 5-year option, the coupon rate for the monthly payout option is 10.04% and that for the annual payment option is 10.5% – that translates into an effective yield of about 10.5%. In effect, higher the tenure, higher the effective yield. Interest, whether paid out or cumulated, will be taxed at investor’s slab rates.

In the 3-year and 5-year options, the company has a call option, that is, it may repay the NCD to the investor at an earlier date.

In the 3-year option, the company can exercise the call option after 2 years from allotment, and in the 5-year option, after 3 years from allotment. The minimum investment is ₹10,000 (10 NCDs) and in multiples of ₹1,000 thereafter. There is 40% reservation in the issue for retail investors — those who invest up to ₹10 lakh. The allotment will happen on a first come, first served basis.

Our take

The NCD’s rating (AA/Stable), while it may not be top-notch (AAA), is still quite high and offers comfort.

The company’s financials seem good. Interest rates and effective yields being offered by the NCD are attractive and superior compared with many of the recent NCD issues, and also with most other fixed income options available in the market currently.

Interest rates in the market could decline in the coming months with the RBI’s rate-easing approach. Investors with some appetite for risk can consider allocating some money to the NCD.

The three-year tenure seems ideal, offering good rates while also allowing investors the flexibility to shop for higher rates if the cycle turns in future.


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