Update: Reliance Home Finance NCD is oversubscribed 3 times on the opening day. Seeing the overwhelming response, the issue will be closed on Friday instead of the scheduled date of January 6.
Reliance Home Finance will open its public issue of NCDs on 22nd Dec 2016 & it closes on 6th Jan 2017. This NCD issue is offering yield upto 9.4% and have 4 different investment options.
In this post, I am trying to put details around how good this Reliance Home Finance NCD is ? What are the postive and negative factors of Reliance Home Finance NCD? Who should invest in Reliance Home Finance NCD?
Key Features of Reliance Home Finance NCD
- NCD Issue Open: 22 Dec 2016
- NCD Issue Closing date: 6 Jan 2017 (now closed on 23-Dec because fo oversubscription)
- Type of Instrument: Secured redeemable non-convertible debentures (NCD) fpr 3, 5 & 10 years, Unsecured for 15 years
- Size of Issue: Rs. 1000 crores with a green-shoe option of another Rs 2500 crores = Total Rs 3500 crores
- Minimum & Maximum Investment: minimum 10 NCD of Rs 1000 each = Rs 10000.
- Listing: Proposed to be listed on NSE & BSE (within 12 working days of closing the issue)
- NRI– Non Resident Indian (NRI) cannot invest in this issue
- Credit Rating– Secured NCDs are rated as BWR AA+, CARE AA+
- UnSecured NCDs are rated as BWR AA, CARE AA
- Interest Payable – Annual every year
- Issue Allocation or Allotment method: First come first served basis
- Issue Breakup
| Category | Allocation | Priority |
| Individual Retail (IV) |
30% | 1st |
| HNI (III) | 30% | 2nd |
| Non-institutional (corporate) (II) | 10% | 3rd |
| institutional (I) | 30% | 4th |
| TOTAL | 100% |
Interest rate options for Reliance Home Finance NCD
| Series | I | II | III | IV |
| Frequency of Interest Payment | Annual | Annual | Annual | Annual |
| Nature of Instrument | Secured | Secured | Secured | Un-Secured* |
| Minimum Application | Rs. 10,000 (10 NCDs) across all Series collectively | |||
| In Multiples of thereafter | Rs. 1,000 (1 NCD) | |||
| Face Value of NCDs (Rs./ NCD) | Rs. 1,000 | |||
| Issue Price (Rs./ NCD) | Rs.1,000 | |||
| Mode of Interest Payment | Through various options available | |||
| Tenor | 3 years | 5 years | 10 years | 15 years |
| Coupon (%) for NCD Holders in Category I & Category II | 8.70 | 8.90 | 9.00 | 9.25 |
| Coupon (%) for NCD holders in Category III and Category IV | 8.90 | 9.05 | 9.15 | 9.40 |
| Effective Yield (per annum) for NCD Holders in Category I & Category II | 8.70 | 8.90 | 9.00 | 9.25 |
| Effective Yield (per annum) for NCD Holders in Category III & Category IV | 8.90 | 9.05 | 9.15 | 9.40 |
| Redemption Date (from the Deemed Date of Allotment) | 3 years | 5 years | 10 years | 15 years |
| Redemption Amount (Rs./ NCD) |
Rs. 1,000 |
|||
About Company
- A Reliance Group company, one of India’s prominent private sector business houses, led by Mr. Anil Dhirubhai Ambani
- Incorporated in 2008, a wholly owned subsidiary of Reliance Capital Limited, is the financial services arm of the Reliance Group
- A non deposit taking Housing Finance Company registered with the NHB
- Focused on providing housing financing products for the LMI to HMI segment in India
Wide geographical presence with focus primarily to market in Tier II and Tier III cities and towns.
Taxation Aspect
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.
| 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. |
Positive factors
- Attractive Interest rates of 9.4% as compare to Banks FD rates (approx 8%)
- Secured NCD as well as Unsecured option available
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.
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.
How to Apply
- Physical Form – You can download the Form and submit to designated bank branches alongwith cheque. (Link to download Reliance Home Finance NCD Dec 2016 Form)
- Online – You can invest online in DMAT form through your online share trading account or through your broker.
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).
The Secured NCD is giving upto 9.15% and unsecured option upto 9.4%. 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.