IFCI Millionaire Bond: Sell

Recommendation: Sell

Reshma Krishnan

IFCI issued this bond at Rs 10,000 as a part of a series in 1996 and is called the millionaire bond.

It is a deep-discount bond and matures in September 2026 and will be redeemed at Rs 10,00,000. It now trades at Rs 21,900 and is a liquid bond. If bought now and held to maturity, it will give a yield-to-maturity of 16.52 per cent.

Given the fluid interest rate situation, there is considerable uncertainty attached to holding an instrument for such a long period. Therefore, investors may consider avoiding an exposure to this bond. If bought at the issue price and sold at the current levels, the bond would give a return of 14.30 per cent (for a five-year period). This is an attractive return and investors might want to exit the bond.

Since IFCI's financial position is precarious, investors can sell the bond. With trading being liquid, exit and re-entry options (if needed) are available.