Uthoot Finance NCD’s which were issued at a face value of Rs 1000 and coupon rates of 12.25% for 3 years and 5 years for retail investors applying upto five lacs, listed on Tuesday the 20th of September at a discount.

These bonds were the 5th such issue in a series of bonds which started from Shriram Transport, India Infoline. Shriram City Union, Mannapuram and then Muthoot Finance. The reason why the bond listed at a discount is the wrong marketing of the instrument. The time when these bond issues came there were hardly any IPO’s and the primary markets were flush with funds. Some intermediaries marketed these bond issues which are pure fixed income issues as instruments where there would be listing gains and there were grey markets transactions in these instruments as well. When the issues from India Infoline and then Mannapuram listed and traded at a discount, there was large scale withdrawal from the issue of Muthoot Finance.

From the charts above it is clear that the price of the 5 year bond fell from the beginning of the day’s trade and continued to fall till the end of trading. In the case of the three year bond the fall was much less and the bond was steady. After the initial; fall the bond price became steady and not only held ground but actually recovered towards the end of the day.

Statistics at the end of the day show that the weighted average of the 3 year bond was Rs 978.93 while the closing price was Rs 989. At this price the yield improves to 12.38% on a yield basis and if held to maturity there is another gain which makes the total yield at 12.75%.

In the case of the five year bond the weighted average of the day’s trade was Rs 950.10 and the closing price was Rs 941.93. At this price the yield comes to 13% and if held to maturity, the returns come to 14.16%.

I believe that bonds and NCD’s are not equity shares and only investors who understand these instruments should invest.