Happy New Year 2014

I am not doing any new year resolutions this year, but I have spent the past few days reflecting on how the year has gone by and some things that have worked well for me in the past year that I’d like to continue.

These are very simple things that a lot of you will already be doing but if you aren’t then they are definitely worth a try.

1. Build alliances with like minded people: Unfortunately the world of Indian personal finance is littered with problems, and dishonest people is one of the biggest problems it has.

It is very rare to find people making an honest living in this environment, and even when you find them it is quite hard to forge alliances with them. That’s why for a large part of OneMint’s existence it has been more or less a one man show. Somewhere along the way Shiv discovered the blog, and I got to know him professionally, and later personally. This is the luckiest thing that has happened to OneMint. Both of us have a common vision about personal finance, and regular readers should know all too well how detail oriented and honest he is. These are qualities that I deeply cherish and are rare in today’s environment.  Shiv and I have been working together for quite some time now and if not for him, I would have probably shut OneMint by now.

I realize how valuable he has been for the blog, and after meeting him I’ve been actively seeking like minded people in other areas of work as well, and try to find common grounds to work together and grow together. Finding people who share your vision and working with them instead of working in silos is one of the key things I want to continue to do in 2014.

2. Take time off: I think one of the main reasons for thinking about shutting down OneMint was that I was just burned out. For the last 5 years or so I have worked non stop on weekends and holidays, and I used to think that if you do something you enjoy you don’t get burned out, but that hasn’t been true for me. Somewhere in the last year, I got so fatigued that I just gave up on blogging. If it wasn’t for Shiv’s posts, the traffic would have died and OneMint would have died a slow death.

Doing things that you do for their own sake is what is truly a fun activity and if you don’t build in fun breaks in your routine, you won’t be able to sustain anything for the long run. I have started slotting in some time for recreational reading, TV, Chess, movies etc. all things that have no purpose other than fun to make me more productive in the rest of my time. I had come to this realization on my own, but reading The Power of Full Engagement made me grasp this concept much better.

3.Build a habit: I read Leo Babuta’s post on forming habits sometime this year, and at about that time I was thinking of what I could do to get physically more active.

Although it sounds pretty ridiculous, I took his advice and started off with five push-ups every day. How ridiculous is that, right? But it actually does work. If you want to build a habit, start with something exceedingly small, and as you get into a routine that habit will forge and you will be doing a lot more than you initially thought you would. I’ve been going to the gym quite frequently now, and those five push-ups have transformed into a full blown 60 minute workout.

4. Volunteer: I wanted to start volunteering my time this year, and I wanted to do something in the area of children and education, but as I explored options and spoke with people I realized it isn’t very straightforward to get volunteer work in this area.

I expanded my search and found that one of the things I could practically do was walk dogs at a local no kill shelter. It is just 15 minutes drive, and all you have to do is go there and walk the dogs that are there so they don’t stay locked inside their pen throughout the day and get some exercise and a chance to do their business.

In the beginning it didn’t seem like much, you just walk dogs for two hours a day every week, anyone can do that, and it doesn’t seem to be very meaningful, but we went there anyway. But as you do this regularly, you get a sense of the bigger picture, and how your small part in it allows the whole system to work. You’re there volunteering your time, so a dog gets a chance to stay there and not be killed due to lack of resources at the government shelter. I heard of a story of a family where the dad lost his job, had to give away their pet, and that pet was put down due to lack of resources. Their grief was compounded many times, and it is then that I understood that every small bit actually helps.

Every small bit helps, and if you are interested but haven’t found something that seems significant enough, just start with something, anything at all, it does mean something to someone and it will be better than doing nothing at all.

5. Re-read books: I read a lot but I never read the same book again, and I was definitely missing out because of this, I changed this habit a few months ago.

Re-reading helps reinforce good ideas that you picked up the first time around, and you often come across new ideas as well. This is a practice I would definitely continue in the new year as well.

I want to wish all of you a very happy new year, and hope that the new year brings you much wealth and prosperity!

SREI Infra NCDs Issue @ 11.75% – January 2014

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

SREI Infrastructure Finance Limited will be coming out with its third public issue of non-convertible debentures (NCDs) this financial year from Monday, December 30th. The issue will compete with Muthoot’s 12.25% NCDs issue and Manappuram’s 12.50% NCDs issue seeking investors’ investments.

Despite of the fact that interest rates have been rising steadily, SREI Infra has not increased its coupon rates for the retail investors since it last came out with such NCD issue in August this year. It is going to offer a maximum of 11.75% per annum to the individual investors for a 5 years tenure.

It will be a month long issue which is scheduled to close on January 31, 2014, but the company has the right to preclose it if it gets oversubscribed beyond Rs. 100 crore or extend it further if it doesn’t get subscribed by the last day of the next month.

Size of the Issue – The company wants to raise Rs. 100 crore from this issue and there is no green-shoe option provision with the company this time around.

Ratings & Nature of NCDs – CARE has assigned ‘AA-’ rating to this issue with a ‘Stable’ outlook, whereas Brickwork Ratings has given it a ‘AA’ rating. The issue stands superior to both Muthoot issue as well as Manappuram issue ratings-wise. Also, these NCDs would stand ‘Secured’ in nature.

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

Category I – Institutional Investors – 20% of the issue is reserved

Category II – Non-Institutional Investors – 20% of the issue is reserved

Category III – Individuals Investors including HUFs – 60% of the issue is reserved

NCDs will be allotted on a first come first served basis.

NRI Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Interest Rates on Offer – As you can check from the table below, the rates SREI has decided to offer are lower as compared to the rates Muthoot and Manappuram are offering in their respective NCDs issue. But then it carries a better rating also. It will offer 11.25% p.a. with the 2-year option, 11.50% with the 3-year option and 11.75% p.a. with the 5-year option.

There is one diminishing coupon rate option as well which will provide 12.50% interest rate in the first year, 12% in the second year, 11.50% in the third year and 11.25% p.a. in the fourth & fifth years. Effectively it would be 11.77% p.a. which is close to 11.75% p.a. with the other 5-year option.

Institutional and non-institutional investors will get 0.25% p.a. lower coupon rates.

SREI has decided to skip the “Double Your Money” option which it carried in its last issue and Muthoot and Manappuram both are offering currently to attract the investors.

Unique Feature of the Issue – SREI has decided to reward its current shareholders, bondholders and NCD holders in its own unique way in this issue. Individual investors who invest in this issue and who are holders of NCDs/bonds previously issued by SREI Infra in its past public issues and/or are equity shareholders of SREI Infra on the deemed date of allotment, will be eligible for an additional coupon of 0.25% p.a. with Series I, III, V, VI and VII.

NCD holders, in case of series II and IV, will get Rs. 1,249 and 1,396 respectively as the redemption amount per bond on maturity.

Listing, Demat & TDS – SREI would get these NCDs listed on both the exchanges, Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). Investors have the option to apply these NCDs in physical form as well as demat form, except Series VI NCDs which will be issued compulsorily in the demat form.

As the interest earned on these NCDs would be taxable in the hands of the investors, they will have to pay tax on it as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000 in a financial year. NCDs taken in the demat form will not attract any TDS on the interest income.

Minimum Investment – The investors are required to apply for at least 10 NCDs in this issue which makes it a minimum investment of Rs. 10,000.

To me, this NCD issue is simply unattractive. It is not for those investors who are liable to pay taxes and/or who don’t want to risk their investments. Only those investors, who want regular income on a monthly basis, can bear risk somewhat and need not pay any taxes on their annual incomes, should subscribe to this issue.

Investors in the 30% or 20% tax bracket should straightaway ignore these NCDs and subscribe to the tax free bond issues.

Application Form of SREI Infra 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 SREI Infra NCDs, you can contact me at +919811797407

Manappuram Finance NCDs Issue @ 12.50%

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

Manappuram Finance Limited, one of the leading listed gold loan NBFCs which lends money against gold jewellery, would be launching its issue of non-convertible debentures (NCDs) from Monday, December 30th.

The company plans to raise Rs. 100 crore from the issue and in case the issue gets oversubscribed, it has the right to exercise the green-shoe option to retain another Rs. 100 crore, thus making it a Rs. 200 crore issue.

The issue is scheduled to remain open for three weeks to get closed on January 20, 2014.

Interest Rates on Offer – Taking cues from the Muthoot issue, which got launched a couple of days back, the company has decided to offer eleven interest payment options to the investors carrying rates between 11% to 12.50% per annum.

“Double Your Money” Option – Like Muthoot issue, Manappuram also offers its investors to earn back twice the amount they invest during the offer period. But, Manappuram is doing it in 70 months i.e. faster by two months.

Should you go for it? I don’t think so. I think Manappuram is a riskier company to invest with. Also, though it seems quite attractive to hear money will get doubled in 70 months, it is better to be safe than sorry. I think it is better to go for the shortest possible durations with company NCDs.

Coupon Rates for Non-Retail Investors – This is one thing which differentiates these two issues. Manappuram has kept the coupon rates for the non-retail investors exactly the same as they are for the retail investors and probably that is the reason the quota for the non-retail investors is higher.

Ratings & Nature of NCDs – CRISIL has assigned “A+/Negative” rating to this issue which is a notch lower than ‘AA-’ rating CRISIL has assigned to the Muthoot issue and reflects its negative outlook for the issue. However, these NCDs are secured in nature and the claims of its investors will be superior to the claims of any unsecured creditors of the company.

Listing, Demat & TDS – These NCDs are proposed to be listed on the Bombay Stock Exchange (BSE) only. Investors have the option to apply these NCDs in physical form as well as demat form.

The interest earned will be taxable as per the tax slab of the investors and TDS will be applicable if the interest amount exceeds Rs. 5,000. But, NCDs taken in the demat form will not attract any TDS.

Minimum Investment – The investors are required to put in at least Rs. 10,000 in the issue i.e. at least 10 bonds of face value Rs. 1,000 each.

NRI Investment – Non-Resident Indians (NRIs) are eligible to invest in this issue, on a repatriation as well as non-repatriation basis.

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

Category I – Institutional Investors – 10% of the issue size is reserved

Category II – Non-Institutional Investors including corporates – 20% of the issue size is reserved

Category III – High Networth Individuals including HUFs & NRIs – 20% of the issue size is reserved

Category IV – Retail Individual Investors including HUFs & NRIs – 50% of the issue size is reserved

Investors investing Rs. 5 lakh or less will be considered as the retail investors.

As shown in the table above, Manappuram offers slightly higher rate of interest to its retail investors as compared to the Muthoot issue and that too only for the 36-month options and 70-month option. As compared to the tax-free bonds or NCDs issued by other sound issuers, these NCDs are riskier from credit default point of view and I would not advise any of my clients to invest in this issue.

Application Form of Manappuram 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 Manappuram NCDs, you can contact me at +919811797407

IRFC Tax Free Bonds @ 8.65% – January 2014 Issue

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

As National Housing Bank (NHB) tax-free bonds issue is about to get launched from Monday, Indian Railways Finance Corporation (IRFC) would also be coming out with its issue from January 6. Like many of the investors, I am also disappointed with the coupon rates IRFC has announced to offer and also with its decision not to offer the 20-year option.

If any of you doesn’t know already, IRFC has decided to offer 8.48% per annum for the 10-year option and 8.65% per annum for the 15-year option. These rates are lower than the rates NHB issue will carry i.e. 8.51% p.a. for 10 years and 8.88% p.a. for 15 years. As both these issues are ‘AAA’ rated and both companies are government organisations, I think people would be more enthusiastic about NHB bonds.

Though at one place in the prospectus the closing date has been mentioned as February 20, 2014, it has been stated as January 20, 2014 at all other places. Looking at the illustrative example it gets clear that it is indeed January 20th.

Size of the Issue – IRFC is authorised to issue tax free bonds worth Rs. 10,000 crore this financial year, out of which it has already raised Rs. 1,337 crore through a couple of private placements. With base issue size of Rs. 1,500 crore, IRFC plans to mop up all of the remaining Rs. 8,663 crore with this issue, including the green-shoe option to retain additional Rs. 7,163 crore.

I would call IRFC move to be brave enough to target such a large amount to be raised within a span of just eleven working days, which others have not been able to do even with two tranches of longer durations.

Coupon Rates on Offer – People who were hoping to get even higher interest rates and planning to diversify their portfolio with this issue and the NHB issue, have been left disappointed by the interest rates IRFC has fixed to offer. Coupon rates of IRFC have been 0.23% lower with the 15-year option and 0.03% lower for the 10-year option as compared to the NHB issue. As always, the non-retail investors will get 0.25% less rate of interest every year.

As compared to IIFCL as well, which is currently offering 8.66% p.a. for the 10-year option and 8.73% p.a. for the 15-year option, the rates are lower. So, the investors can still subscribe to the IIFCL issue if they haven’t already, as it is still undersubscribed in the retail investors category.

Rating of the Issue – IRFC is the financing arm of the Indian Railways with zero non-performing assets. It earns assured net interest margins (NIMs) from the Ministry of Railways (MoR) and other related entities like Rail Vikas Nigam Limited (RVNL) and RailTel.

Most importantly, in case of any default or shortfall in the money required to redeem these bonds, the MoR will be required to fund the payments due to the bondholders. So, there is minimal risk involved with these bonds and probably that is the reason all rating agencies, CRISIL, ICRA and CARE, have assigned ‘AAA’ rating to the issue.

NRI/QFI Investment – Non-Resident Indians (NRIs) are eligible to invest in this issue, on a repatriation basis as well as on a non-repatriation basis. Qualified Foreign Investors (QFIs) are also eligible to invest in the issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue i.e. Rs. 866.30 crore is reserved

Category II – Non-Institutional Investors (NIIs) – 30% of the issue i.e. Rs. 2,598.90 crore is reserved

Category III – High Net Worth Individuals including HUFs, NRIs & QFIs – 20% of the issue i.e. Rs. 1,732.60 crore is reserved

Category IV – Resident Indian Individuals including HUFs, NRIs & QFIs – 40% of the issue i.e. Rs. 3,465.20 crore is reserved

Listing – The company has decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE). The bonds will get allotted and listed within 12 working days from the closing date of the issue.

Minimum & Maximum Investment – Unlike NHB, the face value of a bond in this issue has been fixed at Rs. 1,000 and as always, the minimum investment would remain Rs. 5,000 i.e. at least 5 bonds of Rs. 1,000 each. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Demat not Mandatory – An investor, as per his/her own choice, can subscribe for these bonds in either of the forms, demat or physical. Though it is mandatory to have a demat account to sell these bonds, you may subscribe to them in certificate form as well and can get them converted to demat form whenever you want.

Interest on Application Money & Refund – IRFC will pay interest to the successful allottees on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment, at the applicable coupon rates. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Interest Payment Date – IRFC has decided to make its first interest payment on April 15, 2014 and subsequent interest payments will also be made on April 15 every year.

What would make you invest in this IRFC bond issue?

With NHB offering higher rate of interest for all maturity periods from Monday and IIFCL, HUDCO still open for subscription with higher rate of interest, what is that one thing which you think differentiates this IRFC issue from the rest of the issuers? Please share your views about it and let’s see if it makes sense to other investors also.

Application Form of IRFC Tax Free Bonds

NHB Tax-Free Bonds – Bidding Centres

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 IRFC tax-free bonds, you can contact me at +919811797407

Double Your Money in 6 Years Again with Muthoot Finance NCDs – December 2013 Issue

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

After raising Rs. 300 crore from the markets in September and another Rs. 300 crore in November this year, Muthoot Finance has again decided to approach the investors to raise another Rs. 500 crore. The company has launched its issue of secured and unsecured non-convertible debentures (NCDs) from today and it is scheduled to remain open for one month to close on January 27, 2014 i.e. last Monday of next month.

The base size of the issue is Rs. 250 crore and the company has the right to exercise its green-shoe option to retain another Rs. 250 crore. Muthoot’s last issue in November got closed in six working days time, I think that is why the company has increased the issue size this time around. The company would like to repeat its success this time also.

Most of the features of the current issue, including its coupon rates for the retail investors, are exactly the same as they were in the first two issues. Let us again have a look at all of these features.

Coupon Rates – Muthoot has not made any changes to its interest rates and not even the variety of maturity periods. Once again it has eleven interest payment options – monthly, annually and cumulative. Like it did in its earlier issues as well, the company offers to double your investment amount in 6 years’ time i.e. 72 months with an effective yield of 12.25% per annum. Again, NCDs issued under this option are ‘Unsecured’ in nature.

The company will offer interest rates ranging from 11% to 12.25% with different maturity periods and different interest payment options. The table below has all these rates:

Coupon Rates for the Institutional Investors – I would call this issue to be a follow-on offer of NCDs by Muthoot. The company has decided to offer the same lower rate of interest to the institutional investors which they got offered last time. They will get coupon rates which would be lower by 75 basis points (or 0.75%) across all the options, except option VII. The difference is of 0.25% in this option.

Ratings & Nature of NCDs – CRISIL and ICRA are the two rating agencies which have rated this issue. Both have assigned ‘AA-/Negative’ rating to this issue. All these NCDs would be ‘Secured’ in nature, except NCDs issued under option XI which offer to double your money in six years.

Demat/Physical Option, TDS & Listing – Investors have the option to apply these NCDs in physical form as well as demat form with options I to VI. Applicants will be allotted these NCDs only in demat form if they go for options VII to XI i.e. you cannot apply for these NCDs in physical form under options VII to XI.

As you know these NCDs are taxable as per the tax slab of the investor, TDS will be applicable if the interest amount exceeds Rs. 5,000 in a financial year. As always, NCDs taken in demat form will not attract any TDS on the interest income. Also, these NCDs will get listed only on the Bombay Stock Exchange (BSE).

Minimum Investment – Minimum investment has been kept at Rs. 10,000 i.e. 10 bonds of Rs. 1,000 face value.

Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and the change in the allocation ratio in this issue is the only noticeable change I have observed as compared to the last issue.

Category I – Institutional Investors – 5% of the issue is reserved

Category II – Non-Institutional Investors, Corporates – 5% of the issue is reserved

Category III – Retail Individual Investors including HUFs – 90% of the issue is reserved

Muthoot’s last issue in November got a very poor response from the institutional investors and that is probably the biggest reason why the company has decided to increase the allocation ratio for the retail individual investors.

NRI Investment – Similar to its previous issues, non-resident Indians (NRIs) are not allowed to invest in this issue as well.

Liquidity is a major issue with these kind of NCD issues. Though these NCDs get listed on the stock exchanges, people don’t easily find buyers for them.

Gold prices have been witnessing sharper cuts in the international markets in the last 15-20 days and as the US economy improves further from here, they are expected to go down further.

Also, as the current account deficit (CAD) has been under control here in India in the past 2-3 months, there is a talk going on in the markets that the Indian government will soon reduce the import duties on Gold. This will result in a fall in gold’s domestic prices, which I think will not be a good news for Muthoot.

Interest rates are again ruling at multi-year highs. In the current scenario in which the investors have options like tax-free bonds yielding 9%+, I wonder why investors go for these NCDs. I still think these bonds are not bought by the investors, rather they get sold by the agents or brokers to their customers.

Application Form of Muthoot 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 me at +919811797407

National Housing Bank (NHB) 9.01% Tax Free Bonds

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

National Housing Bank (NHB), a wholly-owned subsidiary of the Reserve Bank of India (RBI) and the regulator of the housing finance companies (HFCs) in India, will be coming out with its issue of tax free bonds from the coming Monday, 30th of December.

The good news is that the company is going to offer 9.01% per annum for the 20-year option and 8.88% per annum for the 15-year option, which is the highest rate of interest any ‘AAA’ rated issue has carried till date.

Though the issue is scheduled to remain open for the whole of next month to close on January 31st, 2014, the company reserves the right to close it earlier as well in case the issue gets oversubscribed anytime before the due date.

Size of the Issue – NHB is authorised to issue tax free bonds worth Rs. 3,000 crore this financial year, out of which it has already raised Rs. 900 crore through a private placement carried out on August 30th, 2013. NHB plans to raise the remaining Rs. 2,100 crore from this issue, including the green-shoe option to retain oversubscription to the tune of Rs. 1,100 crore.

Rating of the Issue – Being the regulator of the housing finance companies and a wholly-owned subsidiary of the RBI, this issue of NHB has been rated as ‘AAA’ by three credit rating agencies, CRISIL, CARE and ICRA, which is the highest rating by these rating agencies.

Interest Rates on Offer – The company has decided to offer 9.01% p.a. with the 20-year bonds, 8.88% p.a. with the 15-year bonds and 8.51% p.a. with the 10-year bonds. HUDCO is currently offering 9.01% p.a. for 20 years, 8.83% p.a. for 15 years and 8.76% p.a. for 10 years, but that is a ‘AA+’ rated issue. At 9.01% and 8.88%, NHB issue has become the best AAA rated issue for the 20-year and 15-year duration respectively.

If you want to have only AAA rated bonds in your portfolio and do not have more than 10 year investment horizon, then you can still subscribe to the IIFCL bonds which carry 8.66% p.a. interest rate for 10 years.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue i.e. Rs. 210 crore is reserved

Category II – Non-Institutional Investors (NIIs) – 25% of the issue i.e. Rs. 525 crore is reserved

Category III – High Net Worth Individuals including HUFs – 25% of the issue i.e. Rs. 525 crore is reserved

Category IV – Resident Indian Individuals including HUFs – 40% of the issue i.e. Rs. 840 crore is reserved

NRI Investment – Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue.

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Lock-in Period, Premature Redemption & Listing – There is no lock-in period with these bonds, but at the same time, you cannot redeem these bonds back to the company before their maturity period gets over. In order to encash your investment before maturity, you’ll have to compulsorily sell these bonds on the stock exchange(s) where they have been listed for trading.

The company has decided to get these bonds listed only on the National Stock Exchange (NSE) and has got the necessary in-principle listing approval for the same on December 20, 2013. The company will get these bonds allotted and listed within 12 working days from the closing date of the issue.

Demat/Physical Option – Though it is mandatory to have a demat account to sell/trade these bonds, you can subscribe to them in physical/certificate form as well and keep them till maturity. Interest will still get credited to your respective bank accounts through ECS.

Interest on Application Money & Refund – NHB will pay interest to the successful allottees on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment, at the applicable coupon rates. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Face Value of the bonds & Minimum Investment – NHB is the first company this financial year to keep the face value of its bonds as Rs. 5,000 instead of Rs. 1,000. Considering its face value and minimum application size of one bond, an investor is required to invest at least Rs. 5,000 in this issue.

Interest Payment Date – NHB has not fixed its interest payment date as yet and the first due interest will be paid exactly one year after the deemed date of allotment. As the deemed date of allotment will be fixed once the issue gets closed and before the bonds get listed, I will update this post as and when it gets announced.

Should you invest in this issue?

I would say that one should definitely invest in this issue and I have many reasons to justify my view. Here are some of those reasons:

First, NHB issue is ‘AAA’ rated.

Second, you are going to get 9.01% p.a. and 8.88% p.a. coupon rates which are the best 20-year and 15-year rates offered by any AAA rated or AA+ rated issuer till date.

Third, NHB is a wholly-owned subsidiary of the RBI and I don’t foresee the RBI to ever let its subsidiary default on any such bond issue. Also, NHB is the regulator of the housing finance companies, like RBI is for the banks and SEBI is for the capital markets. I don’t think any government would allow any regulator to default on its payments.

Fourth, it is almost certain that the CPI inflation will start falling from next month onwards. If that materialises, we might have G-Sec yields falling quite sharply.

Fifth, IRFC is the next company to launch its tax-free bonds from January 6 and its coupon rates are lower than that of NHB at 8.48% p.a. for 10 years and 8.65% p.a. for 15 years. It is not going to issue these bonds for 20 years either.

Sixth, there are very few good companies left now to issue tax-free bonds this financial year. REC, PFC, NHPC and NTPC have already raised their quota of authorised amount from the markets. HUDCO is also very close to reach its targeted amount. Only IIFCL, NHAI, IREDA, Airport Authority of India (AAI), Ennore Port and Cochin Ship Yard are now left to issue these bonds and their issue sizes are also very small, except NHAI and IIFCL.

Seventh, it is still not certain whether tax-free bonds would see the light of the day next financial year onwards or not. Like 80CCF infrastructure bonds got stopped getting issued from FY 2012-13 onwards, it is possible that the next government decides to stop extending this budgetary support to all such companies.

Eighth, NTPC issue got listed a few days back and that too at a premium. If an issue with coupon rates lower than the NHB issue can trade at a premium, then it is almost certain that these NHB bonds would also trade at a premium on listing.

Ninth, NHB has reasonably strong fundamentals. It reported profit after tax (PAT) of Rs. 450 crore with total income of Rs. 3,030 crore for the period ended June 30, 2013 as against Rs. 387 crore and Rs. 2,492 crore respectively for the period ended June 30, 2012. Its net interest margin (NIM) also improved to 2.25% during this period as against 2.20% last year.

NHB’s asset quality has also been remarkable. Gross NPAs and Net NPAs remained quite close to zero for the periods ended June 30, 2011 and June 30, 2012. Though its gross NPAs and Net NPAs have jumped to 0.53% and 0.45% respectively in the latest period ending June 30, 2013, this relative poor performance was due to one large project exposure slipping into the NPA category. This large account was worth Rs. 179.60 crore out of its total NPAs of Rs. 180.62 crore.

Why you should not invest in this issue?

If I myself decide not to invest in this issue, I would have only one valid reason for that, higher expected coupon rates in the forthcoming issues. If any of you think that the rates would be higher with NHAI bonds or IIFCL tranche III bonds, then you can probably skip this issue. Personally, I would invest my family’s money in this issue and would also advise my clients to do that.

Application Form of NHB Tax Free Bonds

NHB Tax-Free Bonds – Bidding Centres

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 NHB tax-free bonds, you can contact me at +919811797407

Inflation Indexed National Saving Securities – Cumulative (IINSS-C) – December 2013

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

India has been struggling with a quite high level of inflation, both at the wholesale level and even higher at the consumer level. While wholesale price inflation is hovering at around 7.52%, high vegetable prices have pushed the consumer price inflation to 11.24%.

With 11.24% retail inflation and 9% (or below) taxable return on deposits, we are earning a negative return and the purchasing power of every rupee we are earning and saving is actually getting eroded.

To enable us earn slightly more than the retail inflation, the Reserve Bank of India (RBI) will issue Inflation Indexed National Saving Securities (IINSS) from today i.e. 23rd of December.

The issue is scheduled to remain open only for seven working days i.e. till December 31st, but the government reserves the right to preclose the issue even before this scheduled closing date. Moreover, the government has not announced the quantum of money it wants to raise from this issue.

What are these bonds and who is going to issue them – the RBI or the Government?

It has been raining bonds for the past four months but this bond issue is different from the earlier issues in many of its features. These are the bonds which would be linked to the consumer price index (CPI) inflation and though the bonds will be issued by the RBI, it would be the liability of the government of India to pay you the interest payments as well as the principal investment at the time of maturity. That ways you can call these bonds a risk-free investment.

Rate of Interest – These bonds will carry interest rate which is not fixed in advance and would be inflation-linked, as the name suggests. In practical words, these bonds will earn half-yearly interest rate which would be calculated by adding 0.75% to the semi-annual CPI inflation.

e.g. if the CPI inflation is 150 today and it is 157.5 six months later, then the investors will earn 5.75% semi-annual return (5% semi-annual inflation + 0.75% fixed rate) and Rs. 1,00,000 invested today would stand at Rs. 1,05,750 at the end of six months.

CPI inflation, which is to be taken into consideration as the reference inflation, will be used with a lag of three months. e.g. September 2013 CPI inflation will be used as the reference CPI inflation for the month of December 2013, when your investment is getting started and March 2014 CPI inflation will be used as the reference CPI inflation for the month of June 2014, when your first due interest will get accrued and get added to your principal investment amount.

Also, this fixed rate of 1.5% would also act as a floor in case the CPI inflation turns negative  anytime during its tenure of 10 years.

Interest Payment – These bonds have been named as “Inflation Indexed National Saving Securities – Cumulative, 2013” and here ‘Cumulative’ itself makes it clear that no intermediate interest payments will be made to its investors. There is no such provision to get monthly, quarterly, semi-annual or even annual interest payments with these bonds.

Interest will get compounded semi-annually and will be paid only at the time of maturity along with your principal investment amount. Investors, who want to earn a regular income from their investments, would stand disappointed with these bonds.

Taxability & TDS – These bonds are inflation-linked, but not tax-free. The government is not going to leave its share of taxes and not just only 1.5% fixed interest, the whole interest earned on these bonds would be taxable as per the tax slab of the investors.

But, whether it would be taxable annually or at the time of maturity, it is still not clear to me at present. I think it should be taxed annually, in a similar way the Post Office National Saving Certificates (NSCs) get taxed.

Still one thing is clear, that there won’t be any TDS on the interest payable. Though personally I am not in favour of TDS not getting deducted on any taxable income, as it gives a chance to the tax evaders to get away with it, I think it is a good thing for the investors.

Who is eligible to invest? – Indian retail investors, including individuals, HUFs and specific charitable institutions and universities are eligible to invest in these bonds. Non-resident Indians (NRIs) are not eligible to invest in these bonds, but an investor can nominate an NRI as his/her nominee.

Investment Process – Investors, willing to invest in these bonds, need to approach SBI or its associate banks, other nationalised banks like PNB, Bank of Baroda, Canara Bank, IDBI Bank etc. or private sector banks – HDFC Bank, ICICI Bank, Axis Bank or Stock Holding Corporation of India.

All the formalities, including form availability, acceptance of investment cash/cheque/demand draft/e-transfer, Know Your Customer (KYC) verification, registration of the customer on the RBI’s web-based platform (E-Kuber) and generation of the Certificate of Holding, will be done by these banks.

To compensate these banks for their services, the government has decided to pay 1% of the subscription amount they get mobilised.

Minimum & Maximum Investment – These bonds will carry a face value of Rs. 5,000 and an investor will have to subscribe for at least one bond to invest in these bonds. Maximum investment limit has been set at Rs. 5,00,000.

Lock-in period, liquidity & premature redemption – These bonds will carry a lock-in period of one year for the senior citizens aged 65 years or more and three years for all other investors. Also, these bonds are non-transferable and non-tradable on the stock exchanges, so you cannot sell them to any other investor during their tenure of 10 years.

But, you can redeem these bonds back to the RBI after the lock-in period gets over and that too, only on the coupon due date. To redeem these bonds, you’ll have to forego 50% of the last coupon payable as penal charges.

Bonds as Collateral – If you have an urgent but temporary requirement of funds, then you can use these bonds as collateral against loans from banks, financial institutions and other non banking financial companies (NBFCs).

Historical Chart of CPI Inflation

Just check the chart above. It is the 20-year chart of India’s historical inflation based on the consumer price index (CPI). For a good period of time in the last 15 years i.e. from July 1999 to January 2008, the retail inflation remained below the 5% mark. Also, whenever it crossed the psychological mark of 10%, the stay was for a very short period of time and it had an equally sharp reversal.

So, how long we will stay above this important level this time around, it would be quite interesting to observe. If the inflation again falls sharply this time also, like it has happened many a times in the past, then the investors would find themselves trapped with this investment.

Illustrative Examples of Inflation Indexed National Saving Securities (IINSS)

Example I: After-Tax Cash Flow Analysis with calculation of NPV and IRR

Using the financial calculator for a cash flow analysis of this illustrative example, I got Rs. 5,979 as the Net Present Value (NPV) and 7.2557% as the Internal Rate of Return (IRR).

Example II: After-Tax Cash Flow Analysis with calculation of NPV and IRR

Again, with this illustrative example, the Net Present Value (NPV) comes out to be Rs. 3,598 and the Internal Rate of Return (IRR) is 5.0909%.

So, if I compare these two rate of returns with the current coupon rates of tax-free bonds, then it is clearly evident that tax-free bonds seem to be a better investment option. But then these are just illustrative examples and the actual inflation numbers would be quite different from these assumed figures.

Investors, who are not liable to pay any tax on their current income and also on their future income or who fall in the 10% tax bracket and who also think that inflation is not going to come down at least for the next 3-5 years, should definitely subscribe to these bonds.

Due to its unfavourable tax treatment, lock-in period of 3 years, 50% deduction of last year’s due interest in case of premature withdrawal, high uncertainty about inflation and no scope of any capital appreciation, I would personally avoid these bonds and go for the tax-free bonds for my investments.

Also, I could not work on a comparative analysis of these inflation-linked bonds with tax-free bonds in this post, but I would definitely like to do that as soon as possible. I would also like to have some inputs from your side so that all possible points of comparison can be covered and we can reach to a healthy conclusion out of it.

RBI Monetary Policy Review – Leaves Repo Rate, MSF Rate, CRR Unchanged

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

It was again a day of monetary policy announcement and with CPI inflation rising to 11.24% and WPI inflation rising to 7.52%, most of the analysts on the dalal street had already factored in at least 25 basis points or 0.25% rate hike to be a done deal.

But, contrary to market expectations, Dr. Raghuram Rajan today surprised most of us and decided not to hike the policy rates, including the Repo Rate, Marginal Standing Facility (MSF) Rate and the Cash Reserve Ratio (CRR).

He left the Repo Rate unchanged at 7.75% and the MSF Rate at 8.75% and also assured the markets about its commitment to keep the difference between these two rates at 100 basis points or 1%. It was really a pleasant surprise and gave both the equity markets as well as the debt market a much needed relief.

Why he did not hike the rates despite high inflation?

Dr. Rajan has a view that the recent unusual spike in inflation, due to unseasonal upturn in vegetable prices, is temporary in nature and the prices have already started declining in some of the metro cities, as swiftly as they had increased.

Also, as most analysts believe, a rate hike has not been a successful tool so far to anchor inflationary trends, Dr. Rajan wants to wait for more macroeconomic data to pour in before he takes his call next month.

This is what the RBI did and had to say today:

Repo Rate left unchanged at 7.75% – RBI has left the Repo Rate unchanged at 7.75%. This is the rate at which the commercial banks borrow money from the RBI for a short period of time.

Though it has been left unchanged for now, the governor has made it very clear that the central bank will not stop itself in hiking these rates quickly if the inflationary situation doesn’t improve as expected.

Reverse Repo Rate unchanged at 6.75% – As the Reverse Repo Rate is linked to the Repo Rate, it has also remained unchanged at 6.75%. This is the rate at which the banks deposit their excess money with the RBI for a short period of time.

MSF Rate unchanged at 8.75% – Marginal Standing Facility (MSF) Rate is also linked to the Repo Rate and though people were speculating that it will also be hiked by 0.25% along with the Repo Rate, the RBI has left this rate also untouched at 8.75%. This is the rate which the RBI charges to the scheduled commercial banks for the money borrowed for their overnight liquidity requirements.

Cash Reserve Ratio (CRR) unchanged at 4% – Along expected lines as always, RBI has left the CRR unchanged at 4%. After Pratip Chaudhuri, the former Chairman of SBI, now nobody asks the RBI to cut CRR from its current levels.

Note: If you want to know more about RBI’s monetary policy tools & their intended impact in detail, please visit this post – RBI’s Monetary Policy – Tools & Expected Outcomes

Impact of the Monetary Policy

Impact on stock markets – After ending in the red for six straight sessions, the stock markets today rejoiced the RBI’s decision and called it a pre-Christmas surprise gift by Dr. Rajan. Markets opened on a positive note and had a sharp spike immediately after the RBI announcement at around 11 a.m. BSE Sensex closed up 247.72 points (or 1.20%) at 20,860 and NSE Nifty closed up 78.10 points (or 1.27%) at 6,217.

Impact on debt markets – 10-year benchmark 8.83% G-Sec yield closed at 8.78%, 13 basis points lower than Tuesday’s close of 8.91%. It was again a good news for the debt fund investors as most of these schemes ended the day on a positive note.

Impact on currency – Despite a strong upmove in the markets, the rupee declined 8 paise to close at 62.09 against yesterday’s close of 62.01. Market participants were cautious to deal in the currencies markets ahead of the US FOMC meeting today.

So, after RBI’s policy decisions and market closing, this is where we stand as of today:

Though we are still facing higher and higher growth in consumer inflation in the last few months, today’s so-called ‘brave’ decision by Dr. Rajan has brought much required welcome relief for the markets. What I have been able to make out of Dr. Rajan’s policy decisions and the RBI’s commentary is that they want to give India’s economic growth a chance to recover and probably one more opportunity to the government also to take measures to curb speculative inflation.

As I finish writing this post, the US Federal Reserve has decided to start tapering quantitative easing (QE) by cutting down its bond purchases to $75 billion a month as compared to $85 billion earlier. It would be the first such step towards unwinding the stimulus that has been in place for quite a long time now.

After the Indian markets rejoiced on its central bank’s Rate hike decision, now it is the turn of the US markets to rejoice on its central bank’s QE3 tapering decision. Dow is already up 237 points in today’s trade and we should also have a rally in the Indian markets tomorrow.

Going from product to company

I wrote a post about screening companies for investing about a month ago, and one of the big ideas of that post was to look for products that you use every day in your life, find out the companies behind them, see if they are listed, and finally try to get a sense of whether they are fairly priced or not.

Ashok, Harinee and I had the following comment exchange on that post.

Ashok November 18, 2013 at 7:52 pm [edit]

Based on my casual observations, I believe water filter manufacturers will have a good future. Almost every middle-class household buys one. It has a replacement life of 8-9 years only. There is recurring money made by company through AMC, installation, and servicing. And it has a “fear” factor- “what happens if you don’t use one” – which makes it a mandatory purchase.

Now if you can please look up the numbers and suggest 1-2 stocks in this space :-) ?

Thanks !!
Ashok

REPLY

 Manshu November 18, 2013 at 8:10 pm [edit]

Tell me a few company names Ashok, and I’ll try to do the numbers!

REPLY

Ashok November 23, 2013 at 11:14 am [edit]

Just top of the mind brand names recall: Eureka Forbes (they are the leaders I guess), Kent, PureIt (ITC ?, Unilever?).

REPLY

harineem November 19, 2013 at 10:50 am [edit]

Not to sound sceptical but I come from a city where almost everyone buys water cans. We did consider a water filter as it would save costs but we are so acclimatized to the canned water taste the water even after purification no way comes near this taste.
I assume this is one reason why Water filters are still not a hit!

REPLY

 

Following up on the idea I went to look for Eureka Forbes first. I couldn’t find any ownership information on their website but I did notice a Shapoorji Pallonji logo on the top right of their site. So I searched for Shapoorji Pallonji and found that they are also a private company and Eureka Forbes is one of their several holding companies. All public companies have an “Investor Relations” link on their website, and any time you don’t see this link – it is safe to assume that this is a private company. A little Googling can confirm this for you as well.

The next name was Kent, and looking at their website, I found that this was a private company as well.

PureIt was next on the list, and one look at their logo tells you this is a HUL company. So, the next question is how big is this business for HUL?

Going through their annual report I found that they don’t report on just the PureIt business but report it as part of their “Other” segment, and here are the relative numbers for each of their segments.

Screen Shot 2013-12-14 at 4.49.57 PM

 

 

As you can see from the picture above – PureIt must be a very small part of HUL and may well be unprofitable for them. All this research took about 20 minutes for me, and unfortunately in this case Ashok can’t really invest in the trend that he spotted as far as I can see. I couldn’t find any other public companies operating in this space, but if you know of any please do leave a comment.

Being unable to invest in a stock for one reason or the other is the most common outcome when starting to look for an investment, but it doesn’t really matter that much because you only need 8 – 10 stocks in your portfolio anyway, and you will eventually find those 8 – 10 investments.

The process is fun, doesn’t take very long, and it increases your knowledge and awareness of things around you. That being said the point of the follow up was to looking at a stock and then analyze it which hasn’t happened in this post so if you have any ideas for another product or company please leave a comment and I’ll try to cover it.

Mathematically literate AAP doesn’t get weaker with age

I have gotten a few emails about people missing the weekend links, and I do apologize for being a little lazy lately. I wasn’t reading as much as I usually do and as a result there weren’t enough good links to share.

This week however, I think I have seven good links that you will enjoy, and what better place to start than Delhi election results. I was pleasantly surprised to see the results and although the future is uncertain – I think it is amazing that a party can rise so quickly, and no matter what happens in the days ahead – this will bring positive change to Delhi, and to India as well. Jamal Mecklai touches upon this and talks about a New India in Business Standard.

On the same topic, I enjoyed reading Mr. Narayana Murthy’s recent interview with ET where he shares his thoughts about the election results.

Next year’s elections will be very important for India’s fate and although no one can predict what will happen, I think you will see a huge turnout of voters, as people are fed up of the current situation. The Economist asks if Modi would save or wreck India?

On to something closer to this blog – the NYT on beating the market being an achievable goal.

A bit surprising, but perhaps not that much, some animals don’t get weaker with age.  

I found this blog early morning today, and it is quite hilarious: Headlines from the Mathematically Literate World.

Finally, Banksy’s message on advertising is quite amazing.

 

Enjoy your weekend!