India Infoline Finance has just floated its bonds offering 12.75 % per annum and Shriram City Union Finance’s bond issue offering a return of 11.75 % per annum opens on 12th September.
We spoke to leading financial advisors to find out if they are recommending these bonds to their clients. Most advisors are selling these products. “Because of their attractive fixed returns, these bonds are an easier sell than mutual funds. There is a huge appetite as is evidenced by the fact that the IIFL has been oversubscribed on the second day itself,” says Pankaj Kapadia, a Mumbai based IFA.
Ritesh Sheth of Tejas Consultancy feels that these bonds are a good way to attract clients who prefer to invest in bank fixed deposits. “We usually recommend secured bonds. It is an opportunity to connect with your clients especially when the interest in equity markets is subdued. The commissions offered are on par with what we get in mutual funds.”
Jayant Vidwans of Chaitanya Financial Consultancy says these issues could be ideal for retired individuals looking for fixed returns. “We recommend such bonds if they are listed on the exchanges so that clients can redeem if they require money. There is no tax deduction at source (TDS) if they are listed. It’s ideal for retired people looking for a fixed return. Anything other than PPF has risks, so you have to evaluate the company’s financial health and prospects.”
Issue Details
Others prefer to invest only in high credit rated papers. Vinod Jain of Jain Investments says that he is only comfortable with top rated credit papers. “We are not recommending them. There’s some credit risk involved. Clients are not aware of the credit risk. We are comfortable with the tax free bonds which will be issued by the government. Instead of bonds, it is better to invest in FMPs. We are only looking at participating in top credit rated papers.”
Sub-brokers of IIFL are being offered commission in the range of 0.75% to 1.55% depending on the amount mobilised, category of investors and the options. The commission offered by the brokers of Shiram is not known yet as the issue is not open.
Gajendra Kothari of Etica Wealth Management believes that investors should lock-in the high coupon rates. “The issue looks very attractive considering 12.75% interest per annum for six years. Considering the high interest rate environment, it makes sense to lock-in at the high interest rate. However the issue has got a rating of AA- from both CRISIL and ICRA. Investors who fall in the lowest tax bracket can invest in these bonds. Shriram bonds are backed by the group company and it has a good track record.”
A few advisors are taking a more passive approach of keeping the product on shelf but not pushing it aggressively. “We are not actively pushing these bonds. We recommend only if clients ask for such bonds,” says a Mumbai based advisor.
Some prefer to wait. “These bonds can be bought at a lower price after they get listed on the exchanges,” says a Mumbai based distributor who did not wish to be named.
