Recently one of my blog readers sent this fantastic brochure of 10.25% Muthoottu Mini Financiers NCD Jan 2021 issue where the ad is claiming to double your money in 84 months. Should you invest? what are the risks?
In such a low-interest rate trend across all debt instruments, obviously, if someone is claiming that our money will double in 84 months means an eye-opener right? However, let us first understand the risk involved in such products.
10.25% Muthoottu Mini Financiers NCD Jan 2021 Features
Muthoottu Mini Financiers are a non-deposit taking systemically important NBFC in the gold loan sector lending money against the pledge of household gold jewelry in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Haryana, Maharashtra, Delhi and Goa and the union territory of Puducherry.
Muthoottu Mini Financiers is issuing both secured and unsecured redeemable Non Convertible Debentures (NCD’s) in the January issue for Rs.125 Cr. with an option to retain another Rs.125 Cr. towards over subscription, totaling to Rs.250 Cr.
# NCD Issue start date is 13th January 2021 and closes on 9th February 2021.
# NCD’s are available in 8 different options.
# The interest on these NCDs are payable monthly or at maturity depending on the NCD option chosen.
# The face value of the NCD bond is Rs. 1,000.
# Minimum investment is for 10 bonds means, you need to invest for a minimum of Rs. 10,000. After this, you can invest in multiples of 1 bond.
# These NCD bonds would be listed on BSE. Hence, these are liquid investments.
# Non-resident Indians (NRI’s) cannot invest in these NCD’s.
# IND Ratings has rated these NCDs as IND BBB: Outlook Stable, indicate that instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations and carry a moderate credit risk.
The other details of this particular NCD are as below.
Muthoottu Mini Financiers NCD Jan 2021 – Double money in 84 MONTHS!!
Well as I said above, such offers looks attractive. However, you have to look into the risks involved in such high yielding NCDs. Hence, before jumping into investment, first try to understand the risks.
# Credit Rating
The credit rating of Muthoottu Mini Financiers credit rating is IND BBB; Outlook Stable from IND Ratings. Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.
Hence, due to their low credit ratings they are offering you the higher coupon . Also, do remember one thing that this is the current rating and it may change at any point of time. Hence, such NCDs are risky.
# Secured and Unsecured NCDs
This issue is offering the secured and unsecured NCDs also. Hence, obiviously unsecured are riskier than secured. Don’t be in the trap of DOUBLE your money or interest rate. Instead, concentrate on safety of your principal also.
# Company Financials
Its revenues have fallen from Rs 435.4 Crores in FY2017 to Rs 313 Crores in FY2020. Its revenues for the 6 months ended Sep, 2020 are at Rs 173 Crores compared to Rs 146 Crores of previous year 6 months ending Sept, 2019. Its gold loan business is around 95% of its overall business as at the end of September, 2020.
You noticed that it’s revenue and profits are in down trend since few years. Hence, considering such financial situation, I think it is risky to invest.
Conclusions:- Considering the risk factors associated with this issue of Muthoottu Mini Financiers NCD Jan 2021, I strongly suggest you stay away. In the end, principal protection is first priority then interest on the principal. Never be in the mad mood of DOUBLING your money as early as possible.
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