9.75% JM Financial Credit Solutions Limited NCD May 2018 Issue – Should you invest?

9.75% JM Financial Credit Solutions Limited NCD May 2018 Issue is open for subscription from 28th May 2018, to 20th June 2018. JM Financial Credit Solutions Limited is going to offer Secured and redeemable NCDs. Is it worth to invest?

Earlier I wrote about DHFL NCD (9.1% DHFL NCD May 2018 Issue – Should you invest?). Now it is the turn of JM Financial Credit Solutions Limited. When you compare the interest rate offered by JM Financial Credit Solutions Limited compare to DHFL, this NCD seems attractive. Because DHFL offering NCD at 9.1%. However, JM Financial Credit Solutions Limited offering at 9.75%. What is the catch here? Is it worth to invest or who can invest?

What is a Debenture?

It is a debt instrument which offers a fixed rate of interest for the fixed tenure like your Bank FDs. Usually, Companies or Governments use the tool of debentures to borrow or raise the money for their business expansion.

It is nothing but you are lending a loan to the company. In return, the company will give you an interest rate fixed for a fixed tenure.

What are NCDs (Non-Convertible Debentures)?

There are two types of debentures. One is CONVERTIBLE and another is NON-CONVERTIBLE. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides an attraction to the investor but yields lower interest rates. Non-convertible debentures does not convert into equity shares thus can yield a higher interest rate.

Convertible NCDs turning to shares means you will be the part of the owner of that company.

NCDs or Non-Convertible Debentures are again two types. Once is SECURED and another is UNSECURED. Secured NCDs are backed by the issuer company’s assets to fulfill the debt obligation in case of bankruptcy of the company.

However, UNSECURED NCDs are not backed by any assets and in case company goes bankrupt, there can be an issue in paying back the bondholders. Only after the payment is made to every entity which has some security, the unsecured NCD bondholders have any chance of getting back their money. Hence, these NCD’s have high-interest rates.

About JM Financial Credit Solutions Limited

JM Financial Credit Solutions Limited company was originally incorporated at Mumbai, Maharashtra on May 15,
1980, as a public limited company, under the provisions of the Companies Act, 1956. The company also received a certificate for commencement of business on May 24, 1980. Subsequently, by way of a fresh certificate of incorporation dated March 04, 2015 issued by the Registrar of Companies, Mumbai, Maharashtra, the Company’s name was changed to “JM Financial Credit Solutions Limited”. The Company has obtained a certificate of registration dated August 27, 2003 by the Reserve Bank of India to carry on the activities of a non-banking financial company without accepting public deposits under Section 45 IA of the RBI Act, 1934. The Company is a Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC).

The purpose of this raising of fund is for onward lending, financing, and for repayment/prepayment of interest and principal of existing borrowings of the Company. The balance is proposed to be utilized for general corporate purposes, subject to such utilization not exceeding 25% of the amount raised in the Tranche I Issue, in compliance with the SEBI Debt Regulations.

9.75% JM Financial Credit Solutions Limited NCD May 2018 Issue Eligibility and Features

# Issue opening Date

28th May 2018

# Issue Closes on

20th June 2018.

# Interest or Coupon Rate

The interest rate ranges from 9.11% to 9.75% depending on the category of investor and tenure of the NCDs.

# Issue Size

Base Issue size is Rs 300 Crore (with an Option to retain over-subscription amount up to Rs 450 Crores. Total Issue size Rs 750 Crore).

# Mode of Issue

Demat and Physical form. This NCD will be listed in BSE. Hence, you can sell it and liquidate if you do so before the maturity.

# Face Value

Face Value or Issue Price of one NCD is Rs 1,000 with minimum investment of 10 bonds. Means you have to invest the minimum of Rs.10,000.

# Tenure of the NCD

It offers 38 months, 60 months and 120 months NCD.

# Frequency of Interest Payment

Monthly, Annually or Cumulative option.

# Minimum Application size

Rs 10,000 (10 NCDs) and in multiples of Rs 1,000 thereafter.

# Listing

The NCDs are proposed to be listed on BSE stock exchanges.

# Credit Rating

The Secured NCDs proposed to be issued under this Tranche I Issue have been rated [ICRA] AA/Stable by ICRA and have been rated IND AA/Stable by India Ratings.

# PUT & Call options

Callable Debenture means it can be redeemed by the Issuer (company) before the bond’s maturity. A debenture with a ‘Put option’ works in exactly the opposite manner, wherein the investor can sell the bond to the issuer at a specified price before its maturity.

However, in this NCD, there is no PUT or CALL options are available.

Allotment

These NCDs will be alloted based on the ‘first come, first served’ basis.

# Whether NRIs can invest?

NRIs are not eligible to apply to this NCD issue.

# Tax Deducted at Source (TDS)

The interest income would be taxable with these bonds. However, NCDs taken in a demat form will not attract any TDS. The investor will have to pay tax on the interest income while filing his/her income tax return.

However, in case of NCDs held in physical form, as per the current provisions of the IT Act, tax will not be deducted at source from interest payable on such NCDs held by the investor (in case of resident Individuals and HUFs), if such interest does not exceed Rs.5,000 in any financial year. If interest exceeds the prescribed limit of Rs.5,000 on account of interest on the NCDs, then the tax will be deducted at the applicable rate. To avoid TDS, the investors have to submit the Form 15G/15H accordingly.

Below image will give you the complete feature of 9.75% JM Financial Credit Solutions Limited NCD May 2018 Issue details.

9.75% JM Financial Credit Solutions Limited NCD May 2018 Issue

Taxation of NCDs (Non-Convertible Debentures)

Before proceeding further to blindly invest, check the tax treatment of such NCDs.

The taxability of interest on NCD will depend on the method of accounting you follow for recognizing your income.

If you are following the cash method of accounting, interest will be taxable as and when the interest is received (like in this case of NCDs).

However, under the mercantile method of accounting, interest income on NCD will be taxable as and when interest is accrued and due.

If you hold the listed NCD, (cumulative or annual interest payment), for a period of one year or more, and on selling such NCD if you earn the gain, then such gain will be long-term capital gains (LTCG) chargeable to tax at 10% without indexation benefit.

If you hold the listed NCD for less than one year and on selling of the said NCD and earn the profit then such gain will be short-term capital gains (LTCG) chargeable to tax at normal rates.

Hence, you have to consider the interest income taxation and also capital gain taxation (if you sell it before maturity).

9.75% JM Financial Credit Solutions Limited NCD May 2018 Issue – Should you invest?

# Interest Rate

If you consider the current Bank FD rates of some other debt fixed interest rates, then you notice that they are at a low end. Hence, if you are looking for some fixed return of interest on your capital, then definitely the best choice.

# Security and Credit Rating

These NCDs are secured and hence you no need to worry even if the company goes bankrupt or in financial trouble. However, never rely on current rating. Because current credit rating may change in future based company’s financial condition.

# Interest Rate Payment

This NCD not offers a cumulative type of payment. Hence, you must not treat this like Bank FDs. They pay you the interest either annual or monthly. Hence, if you are looking for some constant stream of income, then go ahead for this NCD. At maturity, you will just receive what you invested.

# Taxation of NCDs

Do remember that you have to pay the tax on whatever the interest you receive from such NCDs. Hence, always consider the returns based on post-tax returns rather than EYE catching pre-tax returns.

The formula to calculate the same is as below.

Post-tax returns = Pre-Tax returns * { (100-Tax Rate) / 100 }

Hence, before proceeding further, you have to look for your NEED, RISKS and TAXATION.

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