8.70% Tata Capital Housing Finance NCD Jan 2020 – Details & Review

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Tata Capital Housing Finance, a subsidiary of Tata Capital, is looking to raise up to Rs 2,000 crore through non-convertible debentures (NCD) offering interest of 8% – 8.7% for different maturities. 

Shriram Transport Finance Company has also open its NCD offer with interest upto 9.1%. Read the review.

Key Features for Tata Capital Housing Finance NCD

Issue Open Date Jan 7, 2020
Issue Closing Date Jan 17, 2020
Type of Instrument Secured redeemable NCDs and
Unsecured redeemable NCDs
Size of issue Rs 2000 crores (Base size: Rs 500 crores)
Minimum Investment 10 NCD (Rs 1000 per NCD)
Max Investment
Listing BSE, NSE
Credit Rating CRISIL AAA/ Stable, ICRA AAA/ stable
Interest Monthly and Annual
Allocation method First Come First Serve Basis
NRI allowed? Not eligible

 

Interest Rate options for Tata Capital Housing Finance NCD

3 year 5 year 5 year 8 year 8 year 10 year
Interest Annually Monthly Annually Monthly Annually Annually
Secured Secured Secured Secured Secured UnSecured
Category I & II 7.99% 8.21% 8.19% 8.3% 8.29% 8.54%
Category III (HNI) & IV (Retail) 8.09% 8.3% 8.29% 8.4% 8.39% 8.69%

There are no PUT & Call options for these Secured NCDs. (which means the NCD issuer cannot redeem before bond’s maturity and the investor cannot sell the bond to the issuer. Investor can however sell the bonds in the secondary market on exchanges.

About Company and NCD Issue

Tata Capital Housing Finance is one of India’s leading non-deposit taking housing finance companies registered with the NHB. It was incorporated in 2008 as a wholly-owned subsidiary of TCL and accordingly are part of the Tata Capital Group which is part of the larger Tata group. The company focus primarily on providing affordable home loans, home equity and construction finance. For Fiscal 2019, the company made total loan disbursements of  Rs 11000 crores.

The proceeds of the NCD will be used for onward lending, financing, and repayment of interest and principal of existing borrowings of lender.

Prospectus

Taxation Aspect

Interest:  

    • The interest earned is to be added to one’s total income, and hence is entirely taxable as per one’s income tax slab.
    • NCDs taken in the DMAT form will NOT attract any TDS on the interest income. However, if NCD are taken in physical form, TDS will be applicable if the interest amount exceeds Rs. 5,000. Investors, if eligible, can submit For 15 G/H to avoid TDS. 
Income earned on NCD Taxable as per tax slab of Investor
If sold on exchange (before 12 months) Short term capital gain / loss Taxable as per tax slab of Investor
If sold on exchange (after 12 months) Long term capital gain / loss  Taxable @ 10% without indexation

In case of an individual or HUF, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate mentioned above.

 

Tax Saving in case of Long term capital Gains

By investment in Capital Gain Bonds Under Section 54EC of the I.T. Act, long term capital gains arising to the debenture holders on transfer of their debentures in the company shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months after the date of transfer.
By investment in residential property As per the provisions of Section 54F of the I.T. Act, any long-term capital gains on transfer of a long term capital asset (not being residential house) arising to a Debenture Holder who is an individual or Hindu Undivided Family, is exempt from tax if the entire net sales consideration is utilized, within a period of one year before, or two years after the date of transfer, in purchase of a new residential house, or for construction of residential house within three years from the date of transfer

 

How to Apply

  • Online – You can invest online in DMAT form through your online share trading account or through your broker.

Comparison

There are other NCDs available in the secondary market that are giving better yield (YTM). However, these NCDs have lower balance duration and the purchase will incur small brokerage cost.

https://www.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm?cat=SEC

Select – “Bonds in CM”

https://www.bseindia.com/markets/debt/tradereport.aspx

Positive factors

  • Attractive Interest rates of 8.7% in the market where the interest rates are declining. 

Negative factors

  • NCDs are not risk free and have default risk.
  • NCDs are not very liquid so it will be difficult to sell it before maturity. Though they are listed on exchanges but trading volumes are low to get right price.
  • As the interest is taxable, post tax returns may not be comparable to the tax free bonds (if you are in higher tax bracket).

Summary

  • Attractive Interest:  Investors who are looking for steady income  can go for this NCD as the Interest rate is attractive and rating is AAA and issued by a reputable corporate group (Tata).
  • Capital Gain:  If the interest rates fall (most likely), these bonds are most likely be traded at premium, thereby having chance of capital gain as well (in addition to the coupon interest).

Though the interest rate is quite attractive, remember that the NCDs are not very liquid in the market. If you are ready to lock in money for that duration without much risk, then you can go for these NCD.

If you looking for Debt instruments only, then you can consider investing in Debt mutual funds, PPF etc.  If you are looking for better returns over long term, you should consider investing in Equity Mutual funds.

Shriram Transport Finance Company has also open its NCD offer with interest upto 9.1%. Read the review.

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