Personal Finance Blog India –

Tax Free Bonds 2015-2016:

Recently Govt allowed 7 PSUs to raise Rs.40,000 crore through Tax Free bonds.As name “Tax Free bonds” indicates , interest income received from these bonds will be free from income tax.

Interest from other instruments like Fixed Deposits,NCDs is of taxable nature and so if any one has good principal amount in hand and requirement of periodic income can think for tax free bonds.

Generally these bonds are secured and back by physical assets so security may not be major issue.

Following public sector companies will raise money through Tax Free Bonds in 2015-2016

  1. NHAI – 24000 Crore
  2. IRFC – 6000 Crore
  3. HUDCO – 5000 Crore
  4. IREDA –  2000 Crore
  5. PFC –  1000 Crore
  6. REC – 1000 Crore
  7. NTPC -1000 Crore

Limitations of Tax Free Bonds:

  • Not accumulation tool & Similar to annuity : Tax Free bonds are alike annuities where investor receive long term periodic interest payment.This is not accumulation this may not be an appropriate instrument for young investor.
  • Tax Free Bonds are for long term : Tax Free Bonds are for longer term like 10, 15 and 20 one should be little careful about requirement of money in future.Bonds held in demat mode can be sold in secondary market but low liquidity can result in very low yield than market.

Liquidity : Liquidity available through annual interest income.

What Rate on can expect :

One can expect  rates – 7.25-7.75% for this year.

Tax Free bonds Vs Immediate annuities:

Insurance companies offers immediate annuity products where investor receives – annuity (periodic income – monthly,Quarterly or Annually).If you are looking for annual interest income Tax free bonds are good instrument for long term, secure interest income  and scores well above immediate annuities of insurance companies.

Tax Free Bonds Vs Fixed Deposits:

Fixed Deposit is popular saving tool and offers cumulative effect, high liquidity.Current FD rates are in the range 8 -8.50%.Interest income from FD is taxable so for individuals who are in higher tax brackets and high principal amount can invest in tax free bonds.

Tax Free Bonds Vs PPF:

Comparison between Tax Free bonds and PPF is not fair.PPF is tool of accumulation while tax free bonds offers periodic interest income.

To invest or not in these bonds is highly individually customized decision .This is one of the best instrument for Tax free,periodic, long term income but  invest after considering liquidity requirements.

11.04% SREI Infrastructure Finance Ltd NCD Issue July 2015:

SREI Infrastructure Finance Ltd – SIFL -have come up with issue of Secured,Non-convertible debentures – NCDs which will open on July 01, 2015.Company is looking to raise Rs.200 crore with option to retain over subscription up to Rs. 1000 crore.

Important Dates:

  1. Issue Open Date:July 01, 2015
  2. Issue close Date: July 20, 2015.

About SREI Infrastructure Finance Ltd:

  1. SREI infrastructure finance offers services to customers engaged in infrastructure development with focus on – power ,road,telecom,ports,Oil & Gas,SEZs with medium to longer term perspective.
  2. SREI infrastructure finance offers bouquet of products – Infrastructure project finance, Advisory & Development,Infrastructure Equipment Finance -joint venture with BNP Paribas,Venture capital,Capital Market and insurance broking.
  3. First Indian NBFC listed at London Stock Exchange.
  4. Pan India presence across India with 198 offices in India and offices in Russia & Germany.

Security : Company will offer security of specific assets with asset cover of 1 times of total outstanding amount of NCDs and interest thereon.Axis Trustee Limited is debenture trustee of issue.

Credit Rating : CARE AA- and BWR AA indicates stable issue.

Investment Options:

Issue offers different investment options – for tenures 39 months and 60 months with different interest payment options like – monthly interest payment,Annual interest payment and cumulative.

Monthly Investment option -Annual Yield for Retail Individual Investors:

SREI Infra NCD July 2015 Monthly Interest


Pl Note : NCDs with monthly interest payment shall be alloted in Demat form only.So demat account is must to opt for this choice.

Annual Interest Option for Retail investors:

SREI Infra NCD July 2015 Anual Interest

Interest to be paid out annually from date of allotment and investor can opt for physical or demat mode of allotment.

Cumulative Option:

SREI Infra NCD July 2015 cumulative Option

Cumuiative interest will paid to investor at end of tenure.Retail investor will receive Rs.13,950 for 39 months and Rs.16,860 for Rs.60 months for NCDs of Rs.10,000/-.Provision of Tax deduction at source will applicable if NCDs are being held with physical mode.TDS will applicable if interest paid / accrued crosses Rs. 5000 in financial year.Investor if eligible can submit form 15G or 15H to avoid tax deduction at source.

Its always difficult to suggest whether you should invest or not in such issues.It depends on investors credit risk capacity.But interest rates being offered @11% are  commensurate to credit risks.Such NCDs can offer diversification within debt portfolio so if investor have sufficient allocation in bank FDs then think to invest some part of overall fixed income in this NCD.

IDFC Infrastructure Bonds – Tranche2 – BuyBack Offer

IDFC have recently announced buy back offer of long term infrastructure bonds alloted in Feb 2011 u/s 80CCD.Buy back facility is available for investors who have opted for same while investing.Long term infra bonds are subject to mandatory lock in period of 05 years and after lock in period investor have option of either buy back or continue.

Buy back date of IDFC infra bonds Tr 2 is on Feb 22, 2016.

If you want to avail buy back:

If investor have opted for buy back option, then remember to send original bond certificate to issue registrar – Karvy Computershare – before January 07, 2015.If bonds are held in demat form then bonds will be automatically redeemed and money will be credited in investors account.

If you do not need money & you do not want to continue with Buy Back Option:

If you do not need money now then you can continue with bonds.But you need to send consent form to IDFC.Investor can send consent letter to registrar by post or can send scanned copy of filled form to email form need to send until August 21, 2015 ..otherwise money will be compulsorily refunded.Investor should remember that if they decide to continue with their investment then next liquidity window will available only on maturity i.e on Feb 21, 2021.

IDFC infra bonds were alloted in Feb 2011 and interest rate offered was 8% either compounded annually or interest paid annually as opted by investors.



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