Shriram Transport Finance NCD Oversubscribed

Shriram Transport Finance NCD was over-subscribed on the first day itself, and Business Standard reports that there is a lot of gray market activity on this NCD, much like there was on the SBI bond issue.

India Infoline reports that the issue is closed for subscription already.

I’m unable to find the official press release, so if you know about it please share a link and I’ll include that in the article.

That said, there are three points I’d like to make about this over-subscription.

1. Don’t regret it if you’ve missed the issue: Shriram Transport Finance was offering a good interest rate, but it was not a crazy good lucrative rate because there are several banks that are offering fairly good deals on their fixed deposits. Here are some of the higher ones.

These are just three banks that come to my mind, and I plan to update my high interest rate FD page very soon, and will do a comprehensive post after that.

If you think about the amount you were going to invest in this NCD, and think of the difference in interest you will earn between these fixed deposits and the NCD, then that’s probably not much.

So, I’d say don’t regret this too much, and definitely don’t get suckered into thinking that you should invest on the first day of the next NCD that’s announced.

2. Buying from the open market is not the same as subscribing to it here: There was a question a couple of days ago about the difference between buying this NCD from the stock exchange versus subscribing to it in the open offer.

First of all, you don’t even know whether you will get to buy it from the stock exchange or not as the volumes in the bond segment are quite low right now. I was looking at a BSE report that showed that the highest volume were on SBI bonds and the daily trading volume for them was just around Rs. 90 lakhs, which is pittance compared to equity.

Secondly, you will not get the bonds at face value, you will probably have to pay extra, and in all likelihood that will negate whatever extra you earn by way of a higher interest rate.

3. There will be other NCDs: The retail debt market is picking up in India, and we should see more such issues from other companies in the future. Who knows, you might even get a higher interest rate from a company that’s on better financial footing.


I’m tempted to restate some of things I said when I learned about the SBI bond gray market, but I don’t want to repeat myself, so I’d just say that personally I wouldn’t get too charmed by promises of listing gains from these bond issues, and if you want to read more then you can always look at my old post gray market returns and annualizing them.

Introduction to NCDs: Part 1

NCDs (Non Convertible Debentures) are in vogue these days, and though I’ve written about company fixed deposits earlier, I see that there are a lot of general questions about them, so here is a post about all the basics of NCDs.

This post contains questions that I see most often, and I was driven to write this because Paresh mentioned some of them yesterday when I asked what type of questions his clients ask about NCDs.

There will at least be a part 2 of this series where I talk about more points, but for the introductory post I wanted to keep things simple and easily digestible.

With that in mind, here are 4 things you must understand about NCDs.

1.  NCDs are debt instruments: Ordinarily, a company can raise money by either issuing shares or taking a loan. There are different ways of taking a loan – they can take a loan from a bank, financial institutions, raise money abroad, or take a loan from the public.

When they take a loan from the public – the instrument used is called a debenture or a bond. Further, there are two types of debentures – Convertible Debentures, and Non Convertible Debentures.

Convertible Debentures can be converted into shares after the lapse of a certain time period, whereas Non Convertible Debentures always remain debt instruments.

Debentures and bonds are used inter – changeably, so keep that in mind as well, and don’t be confused with that.

2. NCDs can be Secured or Unsecured: There are two type of bonds – secured or unsecured. A company can either issue debt that is covered by assets they own, or issue debt that’s like a personal loan, and have no assets marked against it.

A secured NCD is one where they earmark certain assets that will be sold off to pay the bond holders in case of default.

In the case of bankruptcy – secured debt holders will be paid first by selling off the company’s assets. Whatever is left is used to pay off unsecured debt holders, and then whatever is left (which is usually nothing) is given to the shareholders.

That’s why it’s said that secured debt is relatively safer than unsecured debt for bond holders.

3. Your principal is NOT guaranteed in any type of debt: Even if the bond or NCD is secured – that doesn’t guarantee anything.

Sometimes a bond will be issued and secured with 110% assets, which means that the company has earmarked assets worth as much as 110% of the debt issue.

However, the price of the asset may fluctuate and when the time comes to sell the asset the company may be able to recover only 50% of the price of the asset, and hence may not be able to repay your principal.

This is an important point to keep in mind while investing in debt instruments. While safer than equity, there are still no guarantees.

4. How are these different from fixed deposits? Fixed deposits up to a limit of Rs. 1 lakh are guaranteed by the RBI, and RBI pays the deposit holders in case the banks go bust.

Also, while co-operative banks go bust fairly regularly; that fate is not so common for other banks and due to their importance to the financial system, RBI will try to facilitate the takeover of a weak bank, and generally try to avoid a bank going under.

However, these type of efforts will not be spent for most companies, especially the smaller ones.

That’s the reason, generally bank deposits are safer than company deposits.

If you’re making a decision to invest though you will have to dig deeper and not rely on generalities. That’s because there’s a large universe of companies that issue bonds, and you can’t think of bonds issued by Tata Motors in the same manner as you would think of bonds issued by Muthoot Finance.


To summarize, NCDs are debt instruments, they can be secured or unsecured, even when secured, your principal is not guaranteed, and they are different from fixed deposits where RBI insures up to Rs. 1 lakh of your deposit.

I hope these points helped clear some questions you had about NCDs, and as always I eagerly look forward to your questions, comments and observations, and will most probably frame the second part of this series based on them.

India’s Report Card on Google Transparency Report

Google Transparency Report is a lesser known Google initiative where they compile data on content removal requests and user identification requests at a country level, and publish it on the web.

The idea is to show the level of censorship present in a country by releasing data on number of content removal request that originate from that country.

I was going through the website today, and found something interesting about India.

First, let’s look at a breakdown of reasons for a content removal request.

Google Content Removal Request
Google Content Removal Request

These are the number of items requested to be removed in the period between July to December 2010. I’m sure you have noticed that there were 11 items that were requested to be removed as they constituted government criticism. Since when can the government get something off the internet because it’s critical of them?

Google doesn’t remove everything it is requested of, and they give a percentage of compliance on the site as well. For example – the percentage compliance for South Korea is 100%. This means that Google complied with every South Korean request to remove content.

Google notes that many South Korean requests came from the Korean Information Security Agency which requested them to remove search results that contained RRNs or their equivalent of a PAN number. So, they appear to be requests protecting their citizens from identity thefts.

India happens to be the country with one of the lowest compliance rates at 22%. This means that Google only saw fit to comply with 22% of Indian government’s removal requests.

Here are Google’s notes on this:

We received requests from different law enforcement agencies to remove a blog and YouTube videos that were critical of Chief Ministers and senior officials of different states. We did not comply with these requests.

Indians pride themselves on their freedom of speech and this phrase finds itself in our vocabulary from school itself, and rightly so.

However, we probably perceive ourselves to be freer than we really are, as Ajay Shah points out in his post titled slavery is freedom.

The Google Transparency Report is an interesting thing to keep an eye on and see whether these kind of requests stop, or if they become a regular feature of our government.

I’m curious to know if you were aware of this and what you make of it?

Error in yesterday’s post and links

Reader Namit emailed to let me know that there was an error in yesterday’s post about income tax filing exemption.

I had written that even if you had a fixed deposit you were exempt from filing income tax, but that’s not the case. Only if you earn interest from a savings account, and that’s less than Rs. 10,000 are you exempt from filing income tax (provided the other conditions are met).

I’ve updated the post, and thanks a lot to Namit for pointing out the error. Apologies to all readers for my error.

Now, some interesting links this week.

7 life lessons by the very wealthy by Barry Ritholtz

Dirty Business at The New Yorker (Raj Rajatnam’s story)

Trading at the speed of light at The Psy Fi Blog

China: Biggest Trade Power by 2015 at Beyond BRICS

When you’re not ready for retirement at The TFL Guide

Negative comments are good for your brand at Think Outside In

Sending internet banking passwords by mail by Prof Jayanth Varma

Finally, the Economist on the slight chance of America’s technical debt default.

That’s it for this week – enjoy your weekend!

The 5 Lakh Income Tax Filing Exemption Limit Details

I discovered something about the new rule that exempts people earning less than Rs. 5 lakhs from filing income tax returns that I hadn’t noticed before, and I thought I’d do a post on it.

I didn’t know that you lost the income tax filing exemption if you had more than one job in a year, even if you met the other criteria.

This tax filing exemption news is a few days old, so I know that I missed this aspect earlier, but I thought it was best to be late than never, and at least have one post on this topic here, since I expect some people to have questions about this rule.

Income tax filing exemption applicable to taxable income of less than Rs. 5 lacs

You have to consider the taxable income, and not your gross salary. So, if you make Rs 5.5 lacs, but invest Rs. 1 lac in Section 80C instruments then your taxable salary is just Rs. 4.5 lacs, and that makes you exempt from filing income tax returns under the new rule.

You should have income from only your employer and a savings bank account

You can earn interest by way of a savings account and as long as that is less than Rs. 10,000 (and you’re below the Rs. 5 lakh limit) you are exempt from filing income tax.

This income tax filing exemption rule is already applicable

The rule is applicable for the salary you earned in the financial year April 2010 – March 2011, so this rule is already applicable.

Should people with less than Rs. 5 lakhs buy growth instead of dividend mutual funds?

You know that ELSS mutual funds will lose their tax benefits when DTC (Direct Tax Code) kicks in, so a lot of people are interested in taking advantage of ELSS funds this year.

However, with this rule kicking in should you invest in growth instead of dividend mutual funds?

It seems to me that you will only need to file income tax returns if you had dividend income or capital gains income, but if you just bought a growth mutual fund which you don’t sell then you will neither have a dividend income nor any capital gains, and thus the tax filing exemption will still be applicable to you.

I’m not entirely certain I understand this correctly, but it is something worth exploring if you were in this situation.

What about exempt long term capital gains?

You know that long term capital gains in equity mutual funds and shares are exempt from tax. However, if you had such income then it will come under Income from Capital Gains in your total income, and that will take away the tax filing exemption from you.

So, you will have to file an income tax return due to income which is not taxable?!

I don’t know if I understand this correctly, but another thing worth exploring if you are in the situation.


This a good step, and will probably expand to capital gains and interest from dematerialized bonds in the future as well, but until that time you have to keep these factors in mind before deciding if you do or don’t need to file taxes this year.

Disclaimer: I’m not a tax expert, and hire someone else to do my own taxes, so you should use this information only as a starting point to your research.

Update 1: Reader Namit emailed me letting me know that I have written that fixed deposits are included under the exemption, but that’s not the case. You are exempt only if you earn interest from a savings bank account, and not a fixed deposit.

Here is an article from Business Standard that confirms what Namit says. Following is the relevant excerpt:

But those with income from other sources such as fixed deposits and mutual funds will have to file returns.

I have corrected the post, and apologize for the error.

Shriram Transport Finance NCD Review

Shriram Transport is the latest company to offer a debt issue, and they’re going to offer NCDs (Non Convertible Debentures), to retail investors which offer interest rates from 11.35% to 11.60% per annum in the reserved category.

The issue size is Rs. 500 crores (with an option to issue additional Rs. 50o crores if there’s demand), and they have divided applicants into three categories.

The prospectus shows that the company already has secured debt of 14,869.37 crores, and the money raised from this issue will add to the existing secured debt.

Retail investors come under the third category, and as long as their application is for bonds worth less than Rs. 5 lacs, they will be considered under the portion reserved under the retail category, and offered the slightly higher interest rate of 11.60% p.a. for 5 years, or 11.35% p.a. for 3 years.

Shriram Transport NCD: Open and Close Date, and Credit Rating

The issue opens on June 27 2011, and closes on July 9 2011. Going by past issues – I think online brokers will give you an option to invest in these, but that will perhaps not start on day one itself.

The issue has been rated AA/Stable by CRISIL and CARE AA+ by CARE, which for whatever it’s worth is a good rating. Further, these are secured debt instruments so that lends them additional safety as well.

Interest Rate and Options of Shriram Transport NCD

They have kept things simple by having only an annual interest rate payment option (no cumulative option), and two series – one for 5 years, and another for 3 years.

Here are the interest rates and other details of retail reserved category.


Option 1

Option 2


60 months

36 months

Interest Rate



Put / Call Option

Exercisable after 48 months


Interest Payment



The Put / Call Option means that at the end of 4 years you can redeem the bonds with the company, or Shriram Finance can redeem them if they so desired.

As far as I know, this is the first issue in which a company has given this option to the investor. Normally, they keep this option for themselves, but the investors don’t have it.

Minimum Investment and Compulsory Dematerialization

Each bond has a face value of Rs. 1,000 and you have to invest a minimum of Rs. 10,000 after which you can invest in multiples in Rs. 1,000 each.

These will be compulsorily in Demat form, so you need a Demat account to invest in these, and can’t hold them in physical form.

One series has a tenor of 5 years, and another tenor of 3 years, but they will both list on the NSE (National Stock Exchange), so if you needed money before maturity – you could sell them in the open market.

However, prices vary in the open market, and if interest rates rise much further then you may even get less than the face value of these bonds.

TDS on Shriram Transport Finance NCD

Since these bonds will only be issued in demat form, and trade on a stock exchange – tax will not be deducted at source on them.

However, this doesn’t mean they are tax free. They will attract tax, just that it won’t be deducted at source. Also, they don’t have any tax benefits at all.


You need to look at it in two parts, – first is attractiveness of offer, and second is security of your money.

Shriram Transport Finance is offering a reasonably good interest rate for the medium term (3 – 5 years).

While banks offer a high interest rate for the short term, they aren’t willing to let you lock on to the higher rate for a period of 5 years or so.

Thinking about safety of money becomes tricky. You can look at smaller companies and decide that the extra percent or two is not worth the risk, or you can look at bigger companies and think that this is safe, but companies like Shriram Transport Finance are a bit harder because they’re somewhere in the middle.

The promoters own a large chunk of the company (slightly more than 40%) so that’s a good sign, there are no pledges on their stock which is a good sign, and the company has been rated well by the issuers which is also a good sign.

However, I’ve always felt that it’s better to be diversified and not expose yourself too much to one stock or one company’s fixed deposit. If something does go wrong, then the loss should not bring your entire portfolio down with it, but should be something that you can deal with and hopefully replace with the other investments you have.

In good times such as these, it’s sometimes hard to think what can go wrong, but you all know too well things do go wrong all the time.

In fact, in the prospectus of this issue itself, they have mentioned a time in 1998 when the BSE suspended trading in their shares due to non – compliance. How would you feel if that were to happen, and you had 50% of your money stuck in this deposit?

So, I’d say keep these things in mind while making your decision, and as always, all questions, comments and observations are welcome!

Download Excel Based Retirement Calculator

Reader Pattu  has developed a retirement calculator for his own use, and was interested in sharing it with other OneMint readers as well. I took a look at it, and liked what he’s done, so I’m sharing the calculator here.

Download Retirement Planner

He has also described his thought process, which I’m sharing below.

Retirement planning is a complicated financial goal. When you save for a new car, exotic holiday or even for the education of your children, all or most of the accumulated corpus would get spent when the time for the goal arrives. So it is easier to calculate the corpus required for such goals.

When it comes to retirement planning the corpus calculation is complicated because the corpus does not get spent in one shot. Typically it is allowed to grow at some post-retirement interest rate (usually underestimated for safety) and monthly withdrawals are made from it. For complete financial independence during retirement, these withdrawals or pension must increase according to the post-retirement inflation rate.

So the retirement corpus calculation has to take into account not only the years to retirement, present inflation rate but also post-retirement inflation, number of years in retirement and post-retirement interest rate on the corpus.

Given these input parameters, retirement planning consists of two major steps.


1. Calculation of the corpus required:

(a) Compute projected future monthly expenses at the start of retirement. This amount can be taken as the initial monthly pension which will be withdrawn from the corpus.

(b) This monthly pension amount is assumed to increase every year according to the rate of inflation, while the corpus is assumed to grow at some constant interest rate. Using these inputs the corpus is calculated using Excel’s present value calculator (PV).  The inputs to the PV function, the formulae used are a bit technical and can be found here.

(The site also has a nice annuity calculator which will be of interest to people close to retirement).

Since the withdrawals are indexed to inflation, the corpus will decrease each year and become zero at the end of the retirement period given as input. A typical rise and fall of the corpus is shown here.

Retirement Corpus
Retirement Corpus

2. Calculation of the monthly investment amount required:

Once the corpus needed is known this calculation is similar to any other financial goal. It uses the number of years to retirement, estimates of present inflation and annual interest rate, annual increase in investment if any, and amount accumulated so far if any.

The excel based calculator does the above tasks and present an annual cash flow chart of the monthly investment made, monthly expenses, the growth of the retirement corpus prior to retirement and its decrease post retirement. Annual salary is also shown for reference.

Please note:

1. The calculator has been repeatedly tested and checked. However no guarantee is made that it is free of errors. Like every other tool it serves only as an estimate for the monthly investment required and depends on the input parameters. It is meant to be used for education purposes only.

2. For simplicity the pre- and post-retirement inflation rates are taken to be the same. Use a reasonably high value to be safe. A financial expert suggested using 8-9%

3. The pre-retirement interest rate is taken as constant. Since equity allocation would decrease as retirement approaches this would change. The calculator can easily be modified to take into account variable interest rate. Contact me if you need to look at such a calculation.

Download Retirement Planner

Bugs, comments and suggestions are welcome.


Update: Fixed a divide by zero error bug.

Wealth Tax Under the Direct Tax Code

This is another post from the Suggest a Topic page, and we’re going to look at Wealth Tax as proposed in the Direct Tax Code today.

The source of this information is primarily Part E, Chapter X, Wealth Tax from the Direct Tax Code, and the Revised Discussion Paper on the Direct Tax Code, so if you know of a later document on DTC, then please let me know and I’ll revise the post according to information in that document.

Under DTC, Wealth Tax will be charged on individuals, HUFs and private discretionary trusts. Non profits will be exempt from this tax.

Currently, Wealth Tax is charged only on “unproductive assets” but with the Direct Tax Code – Wealth Tax will be charged on all assets with just a few exceptions.

The DTC document describes these applicable assets in detail; for instance a watch valued at more than Rs. 50,000 will be included in your wealth, and cash exceeding Rs. 2 lakhs will also be included in your wealth.

However, there are some exceptions in what will be included as part of your assets. So, if you were a king before independence then your house or your jewelery will not be taxed at all. Or, if you weren’t a king but still had a house or plot which didn’t exceed 500 square metres – that will be excluded from Wealth Tax calculations.

Or, if you had a house that you let out for more than 300 days in a year, then that house will not be included as part of your Wealth.

This is a fairly involved and long list, and if you had to pay Wealth Tax then you definitely need professional advice to figure out what to include, and at what value.

The good news however is that as it stands right now, the threshold for attracting Wealth Tax is pretty high at Rs. 50 crores. Based on that, only a few people will be liable to pay this tax. The rate is set at 0.25% of your net wealth.

Net Wealth is arrived at by subtracting wealth related loans from your assets.

As you know, there is a lot in the DTC that is still to be finalized, and the discussion paper does touch upon the fact that the current limit is too high, and also that productive assets should be exempt from taxes (like they were earlier), so it’s fair to assume that they will bring down the limit of Rs. 50 crores, and they will let shares remain outside the purview of this tax.

I think shares will be kept out of the purview of Wealth Tax because most promoter families have shares worth thousands of crores in their companies, and in some cases they may even have to sell some stock to pay this tax. Some of you might draw parallels with proposed  ESOPs (Employee Stock Options) taxation from about a decade ago.

We will have to wait and watch to see how Wealth Tax is finalized in the Direct Tax Code, but given the high threshold limit, most of us probably don’t have much to get worried about.

Jeevan Arogya, Technology Caves and Getting Fooled by Fluency

I’ll start with this amazing Infographic from Trulia which shows the US cities that are popular among foreigners for home – buying. The data is based on search queries, and not strictly home buying but still makes for interesting reading. New York, San Francisco and Chicago are the top 3 cities for Indian Trulia users.

Next up, Technology Caves from the Dilbert Blog. Scott Adams, the creator of Dilbert has these amazing posts where he discusses ideas (mostly impractical) that really stimulate the brain, and are fun to read. Technology caves describe houses of the future.

Fooled by Fluency at the Psy Fi Blog talks about a simple yet powerful concept – the ease of processing information distorts judgement. Great post!

This news is a little old, but Dhirendra Kumar offers good perspective on salary earners less than Rs. 5 lacs not needing to pay any taxes.

TFL has an excellent post covering all aspects of LIC Jeevan Arogya policy. If you were looking for information on this product then this post is really very comprehensive, and well worth your time.

That’s it for this week, enjoy your weekend!

Reader comment about ICICI Home Loan

Piyush Modi had a very interesting comment on yesterday’s post, and this is relevant for people with home loans from ICICI Bank. It seems that he called them up to get something done, and they offered him a lower rate on an existing home loan, and saved him a lot of money!

I’ve been thinking about it, and can’t understand why they did that, and I certainly don’t know of any other such cases.

I thought I’d publish his comment here to see if anyone else has a similar experience, and to let others know about this as well. It will only cost you a phone call, so there is no harm in trying your luck.

Here is his comment verbatim:

Though this comment is not particularly relevant to this post, but I wanted to leave it and want you to write about it cause I am sure it will help many many of your readers.

My dad has a home loan with ICICI Bank which was once taken at a floating rate of 7.5%, and which now stands at 14.5% rate. I recently called up ICICI Phone banking to ask the procedures for a balance transfer to a different bank & I was told that they are running a scheme where existing customers could move to a lower rate of interest. I was skeptical at first, but then went through with the documentation required and apparently its an amazing scheme. Obviously ICICI wont advertise it or inform you, but it is available.

My dad’s rate has been reset from 14.5 to 10.5% a huge 4% difference. His tenure, which was originally 180 months, and had now gone up to 315 months despite making the EMI repayments for the last 4-5 years (60 months approx) stood slashed at one go to 160 something. Alternatively, one can choose to reduce one’s EMI instead of choosing to reduce the tenure.

For those wondering how such a drastic reduction in tenure is possible, it can happen. In this case, the total EMI was approximately equal to the interest charged in a year and only a very small amount (4-5%) of the EMI was being used to repay capital. With the fall in the rate charged by 4%, this shifted up considerably to 25-27% of the EMI, and this means that a lot more of the EMi is being used to repay capital instead of just service debt and this leads to drastic reduction in tenure.

What were the documentation/formalities required –

1. Cheque for a charge of 0.5% of balance outstanding on the loan+service tax on the same.
This is extremely cheap as I will recoup this charge within 2 months
2. Non-judicial stamp paper of Rs 30 signed by borrower & co borrowers
3. Some sort of an agreement which you will get from the bank itself and has to be signed by borrower & co borrowers
4. All outstanding EMI payments have to be cleared (obviously)

Now I am not sure whether the scheme is available for all home loan borrowers or a particular category, as also the amount of reduction in rates will be the same for all borrowers or not. But give a call to ICICI bank and just ask. It will save you a tonne of money.