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My good friend – Hemant Beniwal of the The Financial Literates recently published a new book, and I just finished reading it this morning.

This is a fantastic book, and I can whole heartedly recommend it to anyone interested in improving their finances.

Hemant has written an easy to understand book with powerful concepts that are very important in your journey to invest better, and be financially secure.

The book is divided into ten messages and Hemant provides commentary on all of his messages and I can say that I agree with every one of them.

Here is a picture from his book about his commandments.

I will write about numbers 1, 2, 6 and 8 here just because they are closer to my heart than the other topics.

Equity is the best asset class: From my own experience I can say that I agree very much with this statement. If you are investing in equities for a long period of time then they will in all likelihood exceed returns from every other asset class. Understanding equity in the sense of buying a business, and then holding on to it makes it easier to own stocks for very long, and in this manner you can emulate some of the top investors in the world.

Hemant has written a very nice chapter on why you can’t imitate a Warren Buffett or Peter Lynch, and I agree with that too. You won’t ever have the same access to a float that Warren Buffett had or the ability to pour through annual reports, but by modeling your thinking on the way he thought you can certainly benefit from investing the way he did.

Timing is impossible: This is also an important subject, and Hemant has captured it quite beautifully and simply. It is just not humanly possible to time the market, but the good news is that you don’t need to. You need to invest for the long term and do it consistently. That will be the key to returns, not buying on dips, and selling on highs.

Bear markets are a true friend: People who don’t invest consistently or who haven’t seen bear markets often panic when the markets crash, and sell out everything at a loss. This is the opposite of what you need to do if you need to make money in the market. Don’t Panic is the mantra.

Investing is simple, but not easy: I think this is the essence of the book. Hemant propounds principles that have been known to us for decades, and have proven to work. You don’t need to be an astro physicist to understand them. Why then do so few people follow it? Because they aren’t easy. When every ‘expert’ on TV is talking about crashes and panics how can you hold on to your stocks then? Some things about investing are counter intuitive until you internalize them and see them work in your own portfolios, and at that time it becomes second nature to you.

Conclusion

This is a very good book written by an honest, and sincere professional that everyone can benefit from. The book resonates with me deeply because I have seen these principles work in my own investments over a decade through even the great recession, and countless crashes before and after that.

Please spend the few hours needed to read Modifying Investor Behavior – It not a Number Game It’s a Mind Gameand apply it to your own investing life.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at shivskukreja@gmail.com

Muthoot Finance has launched its latest public issue of secured, redeemable, non-convertible debentures (NCDs) from today, February 14, 2019. The company plans to raise Rs. 750 crore from this issue, including the green-shoe option to retain oversubscription of Rs. 650 crore. These NCDs will carry coupon rates between 9.25% for 24 months and 10% for 60 months.

Maturity period will range between 24 months to 60 months, having monthly, annual and cumulative interest payment options. The issue is scheduled to remain open for a month to close on March 14, 2019. However, in case of oversubscription above Rs. 100 crore, the company has the right to close it prematurely.

Here are the salient features of the issue you should consider before taking a decision to invest or not:

Size of the issue – Base size of the issue is Rs. 100 crore and the company will have the option to retain oversubscription to the tune of Rs. 750 crore, including the green-shoe option of Rs. 650 crore.

Minimum Investment – Investors are required to apply for a minimum of ten bonds of Rs. 1,000 face value i.e. an investment of at least Rs. 10,000.

Interest Rate on Offer, Effective Yield & Tenor of the Issue – The issue will carry coupon rate of 10% p.a. for a period of 60 months, 9.75% p.a. for 38 months and 9.50% p.a. for 24 months. These rates would be applicable for annual interest payment options only. Monthly interest payment option is also available and coupon rates for these periods are 9.75% p.a., 9.50% p.a. and 9.25% p.a. respectively.

You can check the rates offered for different maturities and different payment options from the table below:

Categories of Investors & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage fixed for the allotment:

Category I – Qualified Institutional Buyers (QIBs) – 20% of the issue is reserved i.e. Rs. 150 crore

Category II – Non-Institutional Investors & Corporates – 20% of the issue is reserved i.e. Rs. 150 crore

Category III – High Net Worth Individuals (HNIs) & HUFs investing more than Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 225 crore

Category IV – Retail Individual Investors, including HUFs investing up to Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 225 crore

Allotment on First-Come First-Served Basis –Allotment will be made on a first-come first-served basis, as well as on a date priority basis i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which it gets oversubscribed.

NRI/QFI Investments – Non-Resident Indians (NRIs), foreign nationals and Qualified Foreign Investors (QFIs) among others are not allowed to invest in this issue.

Ratings & Nature of NCDs – CRISIL and ICRA, the two rating agencies involved in this issue, have assigned ‘AA/Stable’ rating to the issue, indicating the issue to be safe as far as timely payments of interest and principal investments are concerned. As mentioned above as well, all these NCDs are ‘Secured’ in nature.

Demat Account Mandatory – The company has decided to issue these NCDs compulsorily in demat form. So, if you don’t have a demat account, you won’t be able to apply for these NCDs.

Taxability & TDS – No TDS in Demat Form – Interest income with these NCDs is taxable in the hands of the investors and you will have to pay tax on the interest income while filing your income tax return. Moreover, as demat account is mandatory to invest in this issue, no TDS would get deducted from your interest income on NCDs held in demat form.

But, in case you decide to close your demat account, you can get these NCDs rematerialised. So, if rematerialised and held in physical form after the allotment, and if the annual interest income is more than Rs. 5,000, TDS @ 10% will be deducted.

Listing, Premature Withdrawal – Muthoot has decided to get its NCDs listed only on the Bombay Stock Exchange (BSE). Allotment as well as listing of these NCDs will happen within 6 working days from the closing date of the issue. There is no option of a premature redemption back to the company, but the investors can always sell these NCDs on the stock exchange to encash their investments.

Should you invest in Muthoot Finance NCDs?

Financial results declared by both the gold-financing companies, Manappuram Finance and Muthoot Finance, have been above analysts expectations for the two straight quarters in a row. So, from the fundamentals point of view, both these companies are doing good and it seems there is no immediate threat to their business model due to the recent NBFC liquidity crisis, as well as the NPA issues.

The interest rates offered by Muthoot this time around are exactly 1% higher as compared to its previous issue of April 2018. Given the fundamentals are still strong and the asset quality too is not deteriorating in any negative manner, the interest rates on offer look reasonable.

However, the point again is whether one should take risk with these NBFCs for a slightly higher rate of interest these companies are offering. The answer is ‘No’, if you have a limited amount to capital to invest and it is your hard earned money you need to invest to achieve any of your long term financial goals. You should also avoid it if you are in a higher tax bracket.

I also have a view that you should not make more than 5-10% of your debt investment with any one such private company. So, if you have already invested a sizable amount with Muthoot, then you should avoid increasing your exposure here. Investors, who understand risk with such debt investments and are not liable to pay high tax on their taxable investments, can consider investing in these NCDs.

Application Forms – Muthoot Finance NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in Muthoot NCDs, you can contact us at +91-9811797407

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

L&T Finance is going to launch its public issue of secured, redeemable, non-convertible debentures (NCDs) from this coming Wednesday, 6th of March. The company plans to raise Rs. 1,500 crore from this issue, including the green-shoe option to retain oversubscription of Rs. 1,000 crore. These NCDs will carry coupon rates between 8.89% for 60 months and 9.35% for 120 months.

Maturity period will range between 37 months to 120 months, having monthly, annual and cumulative interest payment options. The issue is scheduled to remain open for 15 days only to close on March 20, 2019. However, in case of high demand for these NCDs and raising Rs. 1,500 crore before 20th March, the company might close it prematurely.

Here are the salient features of the issue you should consider before taking a decision to invest or not:

Size of the issue – Base size of the issue is Rs. 500 crore and the company will have the option to retain oversubscription to the tune of Rs. 1,500 crore, including the green-shoe option of Rs. 1,000 crore.

Minimum Investment – Investors are required to apply for a minimum of ten bonds of Rs. 1,000 face value i.e. an investment of at least Rs. 10,000.

Interest Rate on Offer, Effective Yield & Tenor of the Issue – The issue will carry coupon rate of 9.35% p.a. for a period of 120 months, 9.25% p.a. for 60 months and 9.10% p.a. for 37 months. These rates would be applicable for annual interest payment options only. Monthly interest payment option is also available with 120 months and 60 months, and coupon rates for these periods would be 8.98% p.a. and 8.89% p.a. respectively.

You can check the rates offered for different maturities and different payment options from the table below:

Categories of Investors & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage fixed for the allotment:

Category I – Qualified Institutional Buyers (QIBs) – 20% of the issue is reserved i.e. Rs. 300 crore

Category II – Non-Institutional Investors & Corporates – 20% of the issue is reserved i.e. Rs. 300 crore

Category III – High Net Worth Individuals (HNIs) & HUFs investing more than Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 450 crore

Category IV – Retail Individual Investors, including HUFs investing up to Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 450 crore

Allotment on First-Come First-Served Basis –Allotment will be made on a first-come first-served basis, as well as on a date priority basis i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which it gets oversubscribed.

NRI/QFI Investments – Non-Resident Indians (NRIs), foreign nationals and Qualified Foreign Investors (QFIs) among others are not allowed to invest in this issue.

Ratings & Nature of NCDs – ICRA, CARE and India Ratings, the three rating agencies involved in this issue, have assigned ‘AAA/Stable’ rating to the issue, indicating the issue to be safe as far as timely payments of interest and principal investments are concerned. As mentioned above as well, all these NCDs are ‘Secured’ in nature.

Demat Account Mandatory – The company has decided to issue these NCDs compulsorily in demat form. So, if you don’t have a demat account, you won’t be able to apply for these NCDs.

ASBA Mandatory – Like equity IPOs, SEBI has made ASBA mandatory to apply for debt issues also, effective October 1, 2018. So, you are no longer required to issue cheques to apply for these NCD issues. In case of physical applications, you just need to sign on the application form as per your bank records.

Taxability & TDS – No TDS in Demat Form – Interest income with these NCDs is taxable in the hands of the investors and you will have to pay tax on the interest income while filing your income tax return. However, as demat account is mandatory to invest in this issue, no TDS would get deducted from your interest income on NCDs held in demat form.

But, in case you decide to close your demat account, you can get these NCDs rematerialised. So, if rematerialised and held in physical form after the allotment, and if the annual interest income is more than Rs. 5,000, TDS @ 10% will be deducted.

Listing, Premature Withdrawal – L&T Finance has decided to get its NCDs listed on both the stock exchanges, Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). Allotment as well as listing of these NCDs will happen within 6 working days from the closing date of the issue. There is no option of a premature redemption back to the company. However, the investors can always sell these NCDs on the stock exchanges to encash their investments.

Should you invest in L&T Finance 9.35% NCDs?

What we have seen recently in the cases of IL&FS and especially DHFL, it has taught us that nothing is permanent in the financial world and things could change very quickly with any of the private lenders. It doesn’t mean that we should never invest with private companies. I just want to reiterate here that one should be mentally prepared for any kind of adverse event with private companies, and enough research should be done before you hand over your hard-earned money to these private companies.

L&T Finance is a fundamentally sound company and has the brand name of L&T to generate trust with its investors. Probably that is why also it has been rated ‘AAA’ by the rating agencies. But, after all it is a private company. As I have expressed my views earlier as well, one should invest in such debt instruments of private companies for the shortest maturity period, and here 120 months is a very long period of investment with a private company. So, personally I would advise my clients to avoid such a long period of investment with L&T Finance. If you trust L&T Finance more than any other private lender, then you should go with 60-months tenor, otherwise there is not much difference in interest rates of 60 months and 37 months tenors. So, ideally one should invest for 37 months only.

On the other hand, more conservative investors should wait for the NHAI issue details to get announced. God knows why, but the wait for the NHAI issue has been longer than what I initially expected. I hope they issue their bonds this month itself, otherwise I don’t think their issue will see the light anytime before the elections get over and it could even get delayed by 2-3 months after the new government gets going.

Application Forms – L&T Finance NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in L&T Finance NCDs, you can contact us at +91-9811797407

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at shivskukreja@gmail.com

ICICI Prudential AMC has launched an additional offer for Bharat 22 ETF in order to raise a minimum of Rs. 3,500 crore for the government to meet its disinvestment target for FY 2018-19. This additional offer will remain open for today only and the company will accept its applications till 8 pm in the evening today.

As the name suggests, Bharat 22 ETF has 22 companies as its constituents, 3 of which are private companies – Axis Bank, ITC and L&T, and rest 19 are public sector enterprises, few of them are ONGC, SBI, IOC, Coal India, NTPC, Power Grid, BPCL and GAIL.

Bharat 22 ETF closely tracks “S&P BSE Bharat 22 Index”. This index has been designed by the Bombay Stock Exchange (BSE) in consultation with the government.

Before we check how the issue looks from an investment point of view, let us take a look at some of its key features:

Investment Objective – Bharat 22 ETF intends to generate returns that closely correspond to the total returns earned by the securities as represented by the Bharat 22 Index. However, the performance of the scheme may differ from that of Bharat 22 Index due to tracking error and also due to the scheme expenses.

Offer Timeline – Unlike its NFO in November 2017, this additional offer will remain open for just one day only i.e. today, January 14, 2019. It is a very short period of time provided for this investment, but that is how it should be for the offers for sale (OFS) and exchange traded funds (ETFs).

Reference Market Price/NAV – As Bharat 22 ETF is already listed on the stock exchanges, you will not get its units allotted at its face value of Rs. 10. Its last trading price on the NSE today was Rs. 32.98. So, the investors should expect the allotment price to be around this price only, adjusted for a discount of approximately 3.9% for the individual investors.

The daily NAV of this scheme is based on the Bharat 22 Index, and the allotment price would be approximately equal to 1/100th of Bharat 22 Index and calculated post adjusting approx. 3.9% discount offered by the government to Bharat 22 ETF for buying the underlying Bharat 22 Index shares.

Approximately 3.9% Discount for Investors – Investors making an investment during the offer period will be given a discount of approximately 3.9% on their investment. Yes, you have read it right here. The discount you must have heard or read elsewhere would have been 5%. But, actually it is not 5%. The government is offering 5% discount to the investors of the ETF on the shares of the companies to be sold by the government. These are 20 such companies which carry a cumulative weightage of 78% in the Bharat 22 ETF. There will be no such discount on the remaining 2 companies, which carry a cumulative weightage of 22% in the Bharat 22 ETF.

Target Amount to be Raised – The government is targeting to raise Rs. 3,500 crore from this offer. However, in case of oversubscription, the government would like to retain the whole of oversubscription in order to bridge its disinvestment target gap. So, it is highly likely that full allotment will be made to the investors.

Minimum/Maximum Investment Size – Retail individual investors can invest in the scheme with a minimum investment amount of Rs. 5,000. To remain a retail investor, the investment limit has been set at Rs. 2 lakhs.

Demat Account Mandatory – As you cannot hold and trade ETFs in physical form, it is mandatory to have a demat account for you to invest in this scheme. Applications without relevant demat account details are liable to be rejected.

No Lock-In Period – As this is an ETF which gets traded on the stock exchanges, the investors can sell these units anytime post allotment.

Should you invest in Bharat 22 ETF Additional Offer?

Indian markets have underperformed the global markets by a huge margin this calendar year. We are down by approximately 3.5% year to date, as compared to an average positive return of 7% in global markets. But, this negative 3.5% too does not reflect the true picture of the kind of bloodbath we are having in our markets. Many of the mid-cap and small-cap stocks are trading below their 2014 levels, and many of them are down 50-80% from their January 2018 highs. It has been a very painful period for the investors post January 2018. So, if there is any stock or fund or a portfolio which has given a positive return, or has fallen less than 10% in the past 1 year or so, then the investors of that stock or fund or portfolio should actually thank God for saving their hard earned money.

This Bharat 22 ETF too has fallen less than 10% in the past one year, and I was really surprised to know that. Actually, Axis Bank and ITC have given positive returns in the past one year, and these two are the only stocks in this Bharat 22 ETF which have succeeded to remain in the green, while L&T and all its public sector enterprises have given negative returns.

When Bharat 22 ETF was launched in November 2017, most of its constituents were trading close to their 52-week highs, the momentum was favoring the stock markets, there was buoyancy all around and the government successfully raised Rs. 17,000 crore. The picture is pretty much different this time around. Most of its constituents are trading close to their 52-week lows, the momentum is not favoring the stock markets at all, there is pessimism all around and the government is targeting to raise only Rs. 3,500 crore, and might even fail to raise that.

Like earlier as well, I think it is the government’s policies which are going to drive the share prices of these companies and thereby this ETF. If you have a view that Modi government has done a good job for the country and its economy, and it could win the general elections in May 2019, then you should invest in this ETF for the medium to long term. However, if you think it is difficult for the BJP to make a comeback this time around, then I think you would do better to skip it for now, and wait for the markets to suffer a fall due to a knee-jerk reaction to the elections outcome and then deploy your money for long-term wealth creation.

ICICI Prudential Bharat 22 ETF Application Form

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at shivskukreja@gmail.com

Should you invest in Indiabulls Consumer Finance NCDs?

Indiabulls Consumer Finance Limited (IBCFL) is a wholly owned subsidiary of Indiabulls Ventures Limited. The company has a limited track record as it started its lending operations during 2016-17 only. It has a presence in three lending segments – personal loans (29% of total loan portfolio), secured SME loans (52%) and unsecured SME loans (19%) as on September 30, 2018.

IBCFL reported profit after tax (PAT) of Rs. 191.52 crore on a total income of Rs.700.07 crore during FY 2017-18, as against PAT of Rs. 6.69 crore on a total income of Rs. 57.24 crore during FY 2016-17. During the six-months period ending September 30, 2018, the company reported PAT of Rs. 199.29 crore on a total income of Rs. 657.87 crore.

The company launched its lending App ‘Indiabulls Dhani’ in the first half of FY 2017-18 for sourcing its personal loans along with sourcing of business loans, and has been able to scale up its operations significantly post that. Gross loan portfolio of the company stood at Rs. 10,140 crore as on September 30, 2018. Although, the asset quality parameters stood comfortable with Gross NPA ratio of 0.13% and Net NPA ratio of 0.03% as on September 30, 2018, the asset quality of its loan portfolio is yet to be tested as its loan portfolio remains largely unseasoned.

Now, the important question is “Whether this NCDs issue carrying high interest rate of 11% worth considering in this volatile, uncertain scenario?”. The answer could be simple theoretically, but it has really become very difficult to take a decision post the recent IL&FS and DHFL developments. DHFL NCD issues were rated ‘AAA’ till last week, and all these issues received overwhelming response from the institutional investors, corporate investors, and individual investors as well. So, when the NCDs from a ‘AAA’ rated company like DHFL are yielding more than 17-18% and are trading at a discount of more than 25-30%, then it really becomes difficult to take a decision whether to take any further exposure to NCDs of a similar private NBFC or not.

Personally, I would avoid any such NCD issues from a private issuer, at least for the time being, as the problem is that it is not easy to foresee any such problematic scenario well in advance for any such issuer. So, what should be done? Whether we should avoid all such NCD issues from the private companies? The answer is ‘Yes’, if you are a conservative investor, and you don’t want to lose your hard earned money, or if you don’t trust the management of the issuer, or you don’t know anything about the company and its management, or you don’t understand the business of the issuer, or you foresee a decline in the fortunes of the issuer or the industry it is operating in.

So, now when I’m writing these points for this post, I’m getting more and more closer to all those points which I consider while investing in equity shares of a company. Yes, that is the whole point. If you are a prudent investor, rules of investing should be similar for both equity, as well as debt investments, if not the same.

Although, on the other hand, I have a view that the interest rates it is offering are quite attractive and the growth it is showing in expanding its business network is also encouraging. So, if you have faith in Indiabulls Consumer Finance, and its management, and its business prospects, only then you should invest in this issue. Conservative investors should still wait for the NHAI to launch its bonds issue sometime in the last two months of the current financial year.

Application Form of Indiabulls Consumer Finance NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in Indiabulls Consumer Finance NCDs, you can contact us at +91-9811797407