Dewan Housing Finance is opening its public issue of NCDs on 22nd May 2018. This NCD issue is offering yield upto 9.10% and have 7 different investment options.
Last 2 issues from DHFL in 2016 were over-subscribed on the first day itself.
In this post, I am trying to put details around how good this DHFL NCD is ? What are the postive and negative factors of Dewan Housing Finance NCD? Who should invest in Dewan Housing Finance NCD?
Key Features of Dewan Housing Finance (DHFL) NCD
- NCD Issue Open: 22- May-2018
- NCD Issue Closing date: 4-June-2018 (but expected to subscribe early – Last 2 issues from DHFL in 2016 were over-subscribed on the first day itself.)
- Type of Instrument: Secured Redeemable Non-convertible debentures (NCD) for 3 – 10 years
- Size of Issue: Base Issue size is Rs 3000 cr (with an green shoe option of Rs 9,000 crore, and is part of the company’s Rs 50,000-crore fund-raising plan for the financial year 2018-19)
- Minimum & Maximum Investment: minimum 10 NCD of Rs 1000 each = Rs 10000.
- Listing: Proposed to be listed on BSE & NSE (within 12 working days of closing the issue)
- NRI– Non Resident Indian (NRI) cannot invest in this issue
- Credit Rating– CARE AAA; Outlook: Stable’ and ‘BWR AAA, Outlook: Stable’ by Brickwork Ratings India.
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- Interest Payable – Monthly, Annual – Fixed and Floating
- Issue Allocation or Allotment method: First come first served basis
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.
Interest rate options for Dewan Housing FInance NCD
For Category IV Investors – Retail Investors with investments upto Rs 10 lakhs. Investors who are senior citizens on the deemed date of allotment will be eligible for an additional incentive of 0.10 % a year.
| Option | Interest | Years | Frequency | Interest | Maturity |
| I | Fixed | 3 | Annual | 8.90% | Rs 1000 |
| II | Fixed | 5 | Annual | 9.0% | Rs 1000 |
| III | Fixed | 7 | Annual | 9.0% | Rs 1000 |
| IV | Fixed | 10 | Annual | 9.10% | Rs 1000 |
| V | Fixed | 3 | Monthly | 8.56% | Rs 1000 |
| VI | Fixed | 5 | Monthly | 8.65% | Rs 1000 |
| VII | Floating | 3 | Annual | MIBOR + 2.16% | Rs 1091 |
Categories III and IV investors, who are initial allottees as on the deemed date of allotment, will be eligible for a one-time additional incentive of 0.50 percent, 0.70 percent, 1 percent, and 0.50 percent for Series II, Series III, Series IV and Series VI respectively, payable along with last interest, provided the NCDs are held by such investors on the relevant record date, for all interest payments including the last interest payment.
About Company & this NCD Issue
- Dewan Housing Finance is one of the leading housing finance company in India
- For secured NCD, the aseets of the company are backed up for principal & interest.
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.
| Internest 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 @ 10.30% 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
- Physical Form – You can download the Form and submit to designated bank branches alongwith cheque. (Link to download Dewan Housing Finance May 2018 Form)
- 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 9.10% as compare to Banks FD rates (approx 7%)
Negative factors
- NCDs are not very liquid. Though they are listed on exchanges but trading volumes are low to get right price.
- For an investor in the highest tax bracket, it doesn’t make sense to invest in these as the net returns are comparable with that of the tax-free bonds.
Summary
- Attractive Interest: Investors who are looking for steady income can go for this NCD as the Interest rate is attractive and rating is AA.
- 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.