Which investor classes can invest in the NCDs?
The NCDs will be allocated to the four categories of investors as under.
- Category 1 – Institutional Portion has 10% allocation of the overall issue size. These investors include SEBI registered QIBs, mutual funds, provident funds, VCs, AIFs, insurance companies, SIDCs and systemically important NBFCs.
- Category 2 – Corporate Portion also has 10% allocation of the overall issue size. These investors include listed and unlisted companies, statutory corporations, trusts, partnership firms, LLPs, AOPs and scientific organizations.
- Category 3 – HNI Portion has 40% allocation of the overall issue size. These include high net worth investors and Kartas of HUFs investing more than ₹ 10,00,000 in all options of the NCD put together.
- Category 4 – Retail individual portion also has 40% allocation of the overall issue size. These include retail individual investors and the Karta of HUFs investing up to ₹ 10,00,000 across all the tranche options or ₹ 2,00,000 in a single option.
What is the investment process for IIFL Bonds?
Applications for IIFL Bonds can be made between 03 March, 2021 and 23 March, 2021 with an option of early closure. The face value of each NCD will be ₹ 1,000 and the minimum investment that can be made is 10 NCDs worth ₹ 10,000. There is no upper investment limit for QIBs, corporates and HNIs.
All bonds to be applied for and allotted only in demat format. There will not be any physical allotment of bonds. IIFL Bonds will also be listed and allowed to trade on the BSE and the NSE debt segment but only in demat form. Investors have a choice between annual coupon payment, monthly coupon and deep-discount NCDs. The default choice will be the annual payment option.
Safety, returns and liquidity of IIFL Bonds
IIFL Bonds has been rated AA/Negative by CRISIL signifying high degree of safety with respect to timely payment of interest and redemption of principal. IIFL Finance has a stellar track record of debt servicing in the past and that should be good enough to give conviction to investors.
In terms of returns, IIFL Bonds will be among the best in class in current market conditions. IIFL Bonds yields nearly 200 bps more than what a bond fund can yield on an average and 400 bps more than what a bank FD can offer (average figure based on information available in public domain). Considering that the bonds will be listed on BSE and NSE, liquidity will not be an issue for investors.
What are the tax implications for NCD investors?
Since the tax treatment for institutional will vary, we focus only on the individual category. The interest paid annually / monthly in the first two options will be treated as other income and taxed at the peak incremental rate of tax applicable. In the case of the third option of deep-discount bonds, the accrued interest will be treated as income each year and taxed accordingly. However, even in post-tax terms, the returns are attractive.
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